Seven ways for Canada to meet its trade challenges
The most serious problem for Canada on trade in the wake of the COVID-19 pandemic is that the world is turning inward and becoming a hotbed for protectionism. Self- reliance and self-interest are in the ascendancy. The U. S. is reluctant to lead on the pandemic or on most issues requiring international co- operation. Instead, major powers are competing aggressively for power, leaving middle powers like Canada dependent on multilateral institutions that lack clear leadership and the will to work together. Given the growing irrelevance of the United Nations, the erratic performance of the WHO and the U. S.’s undermining of the WTO, countries are compelled to fend more for themselves in a “might is right” world.
The focus may be on recovery but, for many, it is really about survival. Due to the pandemic, global trade has already seen employment, production, prices and supply chains sharply disrupted. The virus has also ushered in a new public health rationale for constraints on trade under the guise of national security.
The Trump administration’s open disdain for many multilateral institutions is most evident on global trade. Because Donald Trump still believes that the rest of the world is “ripping off ” the U. S., his administration has severely restricted the WTO’S ability to safeguard the rule of law on trade by refusing to name panellists to its dispute settlement mechanism, even though American interests have prevailed in more than 90 per cent of the WTO’S recent rulings.
China, the No. 2 economic power aspiring to overtake the U. S. as No. 1, has flouted basic WTO rules since joining the institution in 2001. What had been hoped would help make China more open to political freedoms has had the opposite effect. The more China’s economy has grown, the more authoritarian and aggressive China has become. Theft of intellectual property, forced divestitures and excessive state subsidies are among its major offences. It also uses its new economic muscle to bully states benefiting from China’s largesse.
Here are some suggestions on how Canada can meet the trade challenge:
❚ 1. Now that the USMCA is operational we need to defend vigorously and where possible advance access to our most vital market, invoking deliberately the dispute settlement mechanism retained from NAFTA and using selective retaliation when necessary. The USMCA is a respectful salvage more than a platform for economic growth but it should help check lunges into protectionism.
Because bilateral trade is roughly in balance, there is no reason for Canada to become a passive punching bag for U. S. protectionists and mercantilists. Arbitrary tariffs once again on Canadian aluminum exports will hurt American producers and consumers alike — a message that must be delivered fervently to Congress and at various state levels in the U. S. We should not hesitate to retaliate.
Similarly, chronic complaints from Democratic Sen. Chuck Schumer, the Senate minority leader, about Canadian dairy policy should be rebuffed firmly. Canada made modest concessions on dairy in the NAFTA renegotiation and should abide by them, nothing more. These attacks are regrettably a harbinger of what to expect should the administration change in November. We should stand firm. The best antidote to American protectionism would be a robust V-shaped economic recovery — the sooner, the better.
❚ 2. Because 75 per cent of our trade is with the U. S., diversification has always been desirable. Now, it is essential. For it to become real we first need complete free trade within Canada — a quest over many decades that has delivered more solemn communiqués than substantive results. Most popular in Western Canada, this effort will only succeed with firm leadership from Ottawa and if economic common sense prevails over narrow provincialism, notably in Quebec and Ontario. According to the IMF, liberating Canadian internal markets would yield a four per cent increase in GDP, much more than the USMCA.
❚ 3. Free trade across the country would also give Canada greater leverage and better access with other preferential trade agreements, the best immediate prospects for diversification — the Comprehensive Economic and Trade Agreement (CETA) with the EU, the Canada- Korea FTA and the mini-tpp, affording significant new potential with Japan, Malaysia, Indonesia and Vietnam, among others.
❚ 4. A bilateral trade agreement with a post- Brexit Britain would complement CETA and secure access to what continues to be a noteworthy market for Canada.
❚ 5. Canada should actively explore the prospects for broader trade with India despite the difficulties posed by the high degree of regulations and protectionism in the Indian economy. This initiative can best be conducted following careful preparation and consultations, not by high- level junkets.
❚ 6. Even more daunting are the prospects with China where relations are completely hamstrung by the deadlock over Meng Wanzhou and the two Michaels, Spavor and Kovrig. There is much not to like about China’s behaviour these days on trade and many other issues. The way supplies needed for the pandemic were hoarded before China released initial data on the virus and were then sold for huge profits should elicit worldwide scorn, if not harsh penalties.
We are unwilling to counter discriminatory trade actions against Canadian agricultural exports, even though China has a 3-1 trade advantage over us, lest it harm further those in detention. We should not be reluctant to retaliate.
The story emerging about how hacking and poaching of advanced technology by China contributed to the demise of Nortel makes sombre reading. We should be much better prepared to counter such threats in future. We must also be more deliberate in joining sanctions against China for its repressive moves against Hong Kong. Like Britain, Canada should extend a welcome hand to Hong Kong refugees. We should also nimbly expand relations with Taiwan.
Most importantly, we need to find a way out of the corner we have painted ourselves in, if not by an exchange of detainees then by other means. We have become a hapless pawn caught in a dispute between two giants. Asserting self- righteous points of principle may make some Canadians feel better but it will not break the current stalemate. We must deal with world as it is and not as we would naively like it to be.
We cannot isolate or immunize ourselves from what will soon be the world’s largest economy. Mutual self- interest obliges us to gauge cautiously the prospects for a pragmatic yet limited relationship, proceeding, as the adage about how porcupines mate suggests, “Very carefully!”
❚ 7. Memories of the Great Depression in the 1930s should be a blunt reminder of the perils of protectionism but, as nations seem intent on demolishing much of their history, many may not have learned that lesson. If the U. S. is reluctant to take up the mantle of leadership, other Western democracies like Canada, Britain, Japan, Australia, South Korea and Singapore must strive creatively together to reinvigorate the WTO’S capacity to uphold the rule of law on global trade. Derek H. Burney is the co- author of Braver Canada: Shaping Our Destiny in a Precarious World, published by Mcgill- Queen’s in 2020. The views above are adapted from
his testimony to the Standing Committee on International Trade,
July 9, 2020.