FREE NAFTA THE AUSSIE WAY.
After months of secret talks surrounded by thick wads of economic nonsense and political posturing, the North American Free Trade Agreement renegotiation process seems headed for an appropriate and desirable conclusion: No New NAFTA.
Not that the old NAFTA is perfect. That’s not the point. The problem is that the New NAFTA was shaping up to be at best a marginal improvement in existing continental trade rules. A more likely outcome, judging by various leaks and the fuzzy language of negotiators, was an agreement that entrenched rules that would undermine rather than promote freer trade.
The possibility of a Bad NAFTA seemed even more likely after The Wall Street Journal reported this week that U.S. President Donald Trump, meeting with global auto industry leaders, suggested the United States could impose a 20-per-cent tariff on imported autos along with tough emissions controls on imported cars while U.S. made (or would that be North American made?) vehicles would be exempt.
How can free trade be advanced when such spontaneous bursts of economic ignorance are even part of the discussion? Instead of struggling to accommodate the national protectionist tendencies that have been on display from all three NAFTA countries, a better option would be to send everybody home to re-learn some basic principles of trade and maybe look to other countries for guidance.
For Canada, a good model for a game-changing national trade agenda would be Australia. Over the last 20 years, Australia did what Canada needs to do to liberate itself from the clutches of trade ideas and theories that are not in the best interests of the Canadian economy and consumers.
The two sectors of the Canadian economy that drive trade policy are automobiles and agriculture. They are also the prime obstacles to a Good NAFTA. Australia solved the automobile and farm trade problem by doing what free-trade theory suggests: It unilaterally stopped treating them as national protectorates and turned them over to market forces.
Most Canadians likely missed the news last October that Australia no longer has an auto industry. It’s gone. Done. No new cars are made in Australia. After decades of protectionist policies and subsidies, the country abandoned attempts to maintain a national symbol of economic muscle.
The last made-in-australia car rolled off a General Motors assembly line in October 2017, following the earlier closure of Ford and Toyota plants. “Automotive surrender,” said Jim Stanford, former Canadian auto-union economist, now with an economic institute in Canberra. Stanford said the final impact of the end of auto making “on the national labour market, gross domestic product, and Australia’s international balance of payments will be significant.”
The latest Australian economic reports show a strong trade surplus, including a central bank forecast that shows increased growth over the next two years, and general optimism on the future of the labour market.
One of the great side benefits of the Australian example is the non-existence of an utterly meaningless debate — along Canada-u.s. lines — over whether the country has an auto trade deficit or surplus. In fact, the top imported product into Australia is motor vehicles, valued at US $29billion in 2017. That’s measured against the value of motor vehicles exports: zero. The lesson is that comparative stats on trade are useless ideological diversions.
Another bonus for Aussie consumers: With no national industry to protect, the country is removing tariffs and impediments to automobile imports, bringing more choice and lower prices.
All of this does not mean that Canada should not or could not continue to produce automobiles. If market and economic conditions are right, then companies will continue to build cars in Canada. The lesson from Australia is that there is no need for Canadian governments to continue to protect production or lavish subsidies on automakers. Each new Canadian plant announcement comes with a politician standing at the podium with a cheque, the latest being the expansion of a Toyota plant in Ontario valued at $1.4 billion, with $220 million in federal and provincial support.
From cars to cows, Australia leads the way on trade. In 2001, the country unravelled its agricultural-control regime, deregulated the industry, removed government price controls and established an open market for dairy products. Prices are market based against international competition.
With deregulation came consolidation. The number of farms declined by half, putting dairy farming on a competitive basis to face market trends as they developed. Today Australia exports of dairy products exceed $3 billion a year and is ranked fourth in world dairy trade behind New Zealand, the EU and the United States. Canada’s dairy exports hit $400 million in 2017. A litre of milk in Canada is estimated to cost 35-per-cent more than in Australia.
If the NAFTA negotiations fail to produce a new agreement this week or next, and if the talks drag into next year, not much has been lost so far. Any extended delay provides Canada with an opportunity to review its negotiating position on the two industries that are said to be among the stumbling blocks.
On cars and cows, we have nothing to fear but cheaper milk and maybe even cheaper cars and an end to subsidies.
THE LAST MADE-INAUSTRALIA CAR ROLLED OFF A GM ASSEMBLY LINE IN 2017.