The way that the Canadian policy world thinks about the Canada-U.S. relationship has recently undergone a big change that will have huge implications for government policy and Canada’s place in the world. 

For several years, the prevailing consensus was that Canada needed to diversify its economic relationships around the world because its overreliance on investment and trade with the United States wasn’t in the country’s interests. U.S. politics was unstable, its culture was fractious, and there was a sense that its global economic dominance was being overtaken by China. The logical response was to reduce our exposure to the declining superpower by strengthening investment and trade links with emerging economies elsewhere around the world. 

The Trudeau government itself strongly subscribed to this view. Its early focus on China—including its commitment to pursue bilateral free trade—should be largely understood as a hedged bet against America and an expression of confidence in a future in which the so-called “China model” was on the global ascendancy. As the then-Minister of International Trade, Francois-Philippe Champagne put it in a 2017 statement: 

Today, there are few places that offer us as many exciting opportunities for expanding growth and prosperity through trade and investment as the Asia Pacific region, and especially China…As one of the largest, fastest growing economies in the world, China is an important part of the global economy, and an important partner for Canada.

Fast forward to 2023 and the policy conversation has fundamentally changed. The same minister who’s now in the industry portfolio has recently spoken about the need for “decoupling” and even forced several Chinese firms to divest their Canadian-based assets. Champagne’s own marked transformation on the Canada-China relationship personifies the broader change across the Canadian policy establishment. 

In an era of decoupling between the West and China, Canadian policy is seemingly once again committed to continentalism in general and the United States in particular. Calls for diversification have been replaced by demands for deeper integration. Recent evidence tells us that it’s an economic bet that Canadian policymakers should make. 

The first piece of evidence is a new report published by The Economist magazine on America’s relative economic performance over the past three decades. Drawing on reams of data about growth, productivity, and living standards, the analysis is the opposite of a story of decline. The U.S. economy isn’t only still dominant in global terms, but its relative position has actually gotten stronger at the precise moment that economic commentators and political pundits have effectively written its obituary. 

The comparative numbers are staggering. Consider the following: 

• In 1990, the U.S. accounted for 40 percent of the nominal GDP of G-7 countries. Today it accounts for nearly 60 percent. 
• Between 1990 and 2019, America’s total factor productivity grew by 20 percent whereas the G-7 average over the same timeframe was less than half. 
• Income per person in America was 24 percent higher than in Western Europe and 17 percent higher than in Japan in 1990. Today it’s 30 percent higher than the former and 54 percent higher than the latter. 

The list goes on and on. Notwithstanding America’s unique challenges with respect to gun violence, income inequality, and political polarization, it remains by far the world’s most dynamic, innovative, and productive economy. If it’s in decline as its critics claim, then most of the rest of the world slid irreversibly into sclerosis and stagnation some time ago. 

As the New York Times columnist David Brooks recently wrote: 

You can invent fables about how America is in economic decline. You can rail against ‘neoliberalism.’ But the American economy doesn’t care. It just keeps rolling on.

The second piece of evidence concerns America’s chief rival. The Chinese government’s growing totalitarian instincts are undermining its own economic ambitions. It can use its immense security powers to micromanage the country’s science and technology or it can create a dynamic economy that ultimately competes with the United States. It cannot do both. 

Two recent New York Times reports confirm that it has effectively chosen the former. The first details how strict new censorship rules are undermining progress on the Chinese equivalent of ChatGPT. Initial ambitions about China’s ability to lead on generative artificial intelligence have been replaced by state-driven expectations that these technologies reflect “core socialist values” and exclude ideas and information that threaten “state power.” Technological progress has been subordinated to the overriding imperative of political control. 

The second documents the Chinese Communist Party’s extraordinary efforts to control the scientific inquiry and reporting on the COVID-19 pandemic. Data and information have been misrepresented, manipulated, and withheld. Chinese scientists have been threatened and forced to retract their own work. There have even been cases where the Chinese censorship campaign has extended to international journals and scientific databases. As one Australian scientist in the story bluntly put it: “There’s a major political agenda that is impacting the science.”

These two examples reflect the inherent tension between China’s goals of being a dominant economic and technological power and preserving its authoritarian system of government. Over the long run, scientific and technological progress requires a culture of discovery, intellectual freedom, and the powerful incentives embedded in the entrepreneurial ethos. An authoritarian regime can substitute for these conditions in the short run through a combination of large-scale resources, blunt force, and copying others. But it isn’t a sustainable policy. Political agendas invariably get in the way. 

Which brings us back to the renewed interest in Canada’s deepening economic relationship with the United States. I was at an event at Concordia University last week and heard a statistic that reinforced the case for betting on a North American future. A speaker observed that the total GDP of the eight Great Lake states (Illinois, Indiana, Michigan, Minnesota, New York, Ohio, Pennsylvania, and Wisconsin) and Quebec and Ontario is greater than Germany or Japan. The world’s biggest, most dynamic, and productive economy is still right next to us.

Canadian policymakers shouldn’t therefore be apprehensive about pursuing a new era of continental integration. This isn’t the second-best option in a complex geopolitical context. The evidence is clear: the future will be a North American one. Betting on America and ourselves is bound to continue paying off.

The German government recently delayed a final vote by the European Union to ban the sale of new CO2-emitting cars in 2035. Turns out, despite their zeal to subsidize and mandate the “electrification of everything,” politicians in Europe and elsewhere are proving unable to defeat immutable natural laws.   

Among other problems, electric cars have for more than a century been more expensive, less safe and reliable, and more limited in range than vehicles powered by internal combustion or diesel engines. They take much longer to charge, perform poorly in extreme weather, have shorter lifespans, and limited cargo space. Their batteries make them typically twice as heavy, resulting in more severe tire use and potentially threatening the integrity of multi-storey parking lots. A considerably larger fleet of electric cars will further require a drastic ramping up of power generation, delivery, and charging infrastructures, along with new mining activities on a staggering scale. 

According to electric car supporters, this economic and environmental toll is justified if the electricity can be generated from solar panels and wind turbines. Unfortunately, the sun and the wind have always been unpredictable, intermittent, and variable. As Karl Marx acknowledged long ago, wind power had to give way to water and steam power because it was “too inconstant and uncontrollable.” The development of electricity did not solve these fatal flaws. At best they can be hidden through costly additional water, coal, and natural gas power generation.

Solar panels and wind turbines also require more than 10 times the quantity of materials (from lithium to rare earth minerals) compared to carbon fuel-based alternatives. They would never exist without massive amounts of carbon fuels in the form of machinery, steel and cement production, composite materials, transport, installation, and maintenance (including lubricants). They gobble up 90 to 100 times more land area than natural gas while often dramatically impacting local bird and bat populations. If pursued regardless of costs, the electrification of everything will result in more mining activities than in all previous human history. 

Not surprisingly, in light of these realities, consumers in jurisdictions from North America to Europe have seen their energy bills soar while enduring rolling blackouts and energy rationing. Even green energy pioneer Germany had to revert to coal burning.  

The pre-ordained failure of government-mandated energy transitions has led some commentators to advocate de-growth and reduced consumption as an alternative. Yet, carbon fuels have improved human life in countless ways, from income per capita to life expectancy. As economist William Stanley Jevons observed more than a century and a half ago, “[w]ith coal almost any feat is possible or easy; without it we are thrown back into the laborious poverty of early times,” adding that coal had saved much forestland by eliminating the demand for fuelwood. 

Carbon fuels would soon afterward deliver an astonishingly wider range of economic and environmental benefits. An American researcher wrote in 1925 that the “object of all fuel research is either to eliminate waste and increase efficiency in the mining, preparation, and utilization of fuels, or to convert the raw fuel by treatment or processing into a more convenient or effective form for use with, in many cases, the recovery of valuable by-products for other purposes.”

Twenty years later, agricultural economist Karl Brandt observed that trucks, tractors and combines had replaced “millions of horses” while “millions of feed acres [had been] released for food production,” some of which would later revert to forests. The displacement of urban workhorses by trucks and cars also proved beneficial as vermin and flies were endemic in urban stables and, along with excrement and carcasses, were a source of deadly diseases such as typhoid fever, yellow fever, cholera, and diphtheria. 

Market incentives are inherently compatible with beneficial energy and economic transitions. As engineer and historian of technology Henry Petroski put it, the “form of made things is always subject to change in response to their real or perceived shortcomings, their failures to function properly. This principle governs all invention, innovation, and ingenuity; it is what drives all inventors, innovators, and engineers.” Furthermore, “since nothing is perfect, and, indeed, since even our ideas of perfection are not static, everything is subject to change over time. There can be no such thing as a ‘perfected’ artifact; the future perfect can only be a tense, not a thing.”

Canadian engineer and communist activist Herbert Dyson Carter further observed in 1939 that commercially successful inventions must either save time, lower costs, last longer, do more, work better, or sell more easily. Most of these outcomes have environmental benefits. 

Spontaneous market processes have always mandated the creation of smaller or less important problems than those that existed before. Unlike the myopic transitions pursued by many politicians and activists, however, such market processes have always factored in a much broader range of trade-offs than those currently discussed. Policymakers should understand how our energy systems came to be before any attempt is made to profoundly reshape them.