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Steven Globerman: Trudeau government should end obsession with trade diversification

Commentary

For decades, back to at least when Pierre Trudeau was prime minister, the federal government has tried to diversify Canada’s trade exports and reduce our reliance on the U.S. market. And yet, the share of exports to the United States has remained virtually unchanged. 

Now, in Ottawa’s latest attempt, the Justin Trudeau government has launched the Indo-Pacific Strategy (IPS) meant to increase Canada’s exports (particularly clean energy products) to India, Korea, Japan, China, and other Asian countries. The initiative includes government subsidies for small and medium-sized Canadian businesses pursuing new trade and investment opportunities in the Indo-Pacific region. The government will also establish a trade gateway and “Agri-Food” office in Southeast Asia, appoint a new Indo-Pacific trade representative, and launch “Team Canada” trade missions.

What’s behind this latest Ottawa-led attempt at export diversity?

Simply put, analysts expect that real economic growth in the Asia-Pacific region will exceed that of the U.S. in the foreseeable future, and that the U.S. enjoys leverage over Canada’s economic and political policies as a result of its dominant trade position.

However valid these justifications for trade diversification, a realistic appraisal of the IPS (and other such initiatives) should be highly skeptical of their benefit to the Canadian economy, let alone their success, because international trade is primarily “intra-regional” (i.e. trade within localized regions) rather than “inter-regional” trade among countries separated by greater distances. For example, the U.S. has consistently accounted for approximately 75 percent of Canada’s merchandise exports over the past three decades—again, notwithstanding various efforts by Ottawa to expand exports to Europe and Asia via various trade agreements with countries in those regions.

Trade is primarily intra-regional largely because of the importance of physical and cultural distance, and similarities of language, laws, regulations, and business practices. In inter-regional trade, there are greater differences in these factors. As a consequence, the cost of doing business is typically lower for intra-regional trade compared to inter-regional trade. Moreover, COVID-related supply chain disruptions have encouraged multinational companies to shorten their geographical supply chains by sourcing more of their inputs from local suppliers thereby boosting intra-regional trade.

In addition to the intrinsic challenges of trade overseas, the current political tension between Canada and China will likely further limit the success of the IPS. This situation along with the growing economic and military rivalry between China and Canada’s Western allies make it very difficult for Canadian companies to integrate into supply chains in the Indo-Pacific region, which will remain dominated by Chinese companies for the foreseeable future. And the virtual breakdown of diplomatic relations between Canada and India also seriously diminishes Canada’s future export opportunities in India.

Against this background, it’s crucially important to the future health of Canada’s economy that Canadian trade representatives propose bold new trade initiatives that address current bilateral trade irritants and open new trade opportunities with the U.S. The upcoming trilateral review of the Canada-U.S.-Mexico (CUSMA) trade agreement scheduled for 2026 may be the last best opportunity for Canada to establish a major new direction for that bilateral trade relationship. 

Indeed, beyond addressing long-standing bilateral trade problems such as Canadian tariffs on U.S. dairy exports and U.S. tariffs and import limitations on a range of manufactured Canadian exports (including softwood lumber, steel, and aluminum), Canadian policymakers should promote freer trade in digital services. Services such as education, health care, financial management, and consulting are increasingly being digitized and delivered electronically, and the proliferation of artificial intelligence platforms will dramatically increase the scope and value of digital services and create a major new source of economic gains from bilateral trade.

To date, the Trudeau government’s focus on digital services has arguably been to extract direct and indirect tax revenue from U.S.-based companies such as Alphabet and Meta (in fact, Ottawa’s digital services tax, which goes into effect on Jan. 1, 2024, will be retroactive to 2022). This digital services tax, and the application of Canadian content rules to all streaming services, threaten not only to derail any broadening of the CUSMA to digital services but also jeopardize the renewal of the entire agreement. 

It’s time for Canadian government officials to have faith in the ability of Canadian companies, including producers of cultural content, to thrive in a free trade environment for digital services and to put forward a bold new trade agenda for U.S. trade representatives to consider.

Antony Anderson: The most divisive election in Canadian history

Commentary

Canadians’ ignorance of our own history is a pervasive and regrettable problem. The Hub is pleased to play a small part in attempting to turn this tide by presenting a weekly column from author and historian Antony Anderson on the week that was in Canadian history.

December 17, 1917: The conscription election is held

How do you deal with fellow Canadians when they’re traitors to Empire, King, and Country? 

How could you be loyal to any country that insisted you die for a foreign monarch and a distant war? 

These were the irreconcilable accusations French and English Canadians hurled at each other as they lurched towards the most bitter, divisive election in our history. By 1917, close to 130,000 Canadians, all volunteers, had been wounded or slain in a bloodbath that was supposed to have been a short, jolly romp to thrash the Hun. The francophone solitude had no desire to march off to ravenous killing fields. The grieving anglophone solitude demanded the government bring in conscription to compel the slackers to do their duty. 

Prime Minister Robert Borden had originally promised not to bring in conscription but the first patriotic surges had dimmed and not enough men were rallying to the cause. Determined to maintain Canada’s commitment, Borden decided to break his pledge, knowing full well this would inflame Quebec and farming communities across the West desperate for hired hands. Anxious for a show of unity, Borden set out to establish a coalition government which would then bring in the dreaded legislation. Liberal leader of the opposition and the first francophone prime minister, Sir Wilfrid Laurier refused to join. He would not break faith with his own people. The vast majority of his MPs held steady and did not cross the floor. Borden managed to persuade ten prominent Liberal anglophones to join the new Union Cabinet in a temporary uneasy alliance that gave the barest glimmer of unity. He called the election for December 17th.

To win the election, Borden did everything he could to rig the vote. Historians have called him cynical but that misses the mark. In 1917, the war was not some distant abstraction. Every family had been touched by death. Borden himself had sat at the bedside of wounded soldiers in Europe and wept. He felt duty-bound to honour their sacrifice so he was ruthless. He took the vote away from conscientious objectors and from immigrants who had arrived after 1902 from “enemy alien countries”, (Germany and the Austro-Hungarian empire). He gave the vote to soldiers at war for the first time. He gave the vote to certain women for the first time, specifically those women with a father, husband, son or brother in uniform. The gerrymandering was breathtaking but it was all done, as Borden saw it, to defeat barbarism, preserve decency and democracy, save the Empire, and uphold Canada’s honour. In the furious campaign, both sides accused the other of treachery and moral corruption. Each was convinced of their own righteousness. Each refused to listen to the other.   

On December 17, 86 percent of the electorate cast their vote, the highest turnout in a Canadian election to this day. 1,077,569 loyal Canadians, 57 percent of the electorate, voted for conscription. Two of those votes were cast by future prime ministers, then in uniform, Lester Pearson and John Diefenbaker. On the other side of the emotional chasm, 548,611 loyal Canadians, 35 percent of the electorate, voted Liberal. Triumph and devastation ruled the day. 

The Union party won a solid majority with 153 seats while the Liberals managed to hold 82. The provincial results revealed the true extent of the “racial” division. The anti-conscriptionist Liberals were decimated in the Maritimes and Ontario and nearly wiped out in the West. The survivors were anchored in Quebec, taking 62 of the 65 seats. The largely anglophone Union government had secured a poisoned mandate to compel Canadians into uniform by taking national unity to the brink. 

Despite all the rage and rancour, the wounded Dominion endured. The war would at last end the following year before many of the new conscripts would even reach Europe. The Union party no longer had a reason to exist and was dissolved for the next election. Tempers cooled though no one forgot. 

Perhaps the most lasting impact of the election was embodied in the person of the Liberal candidate for North York, Ontario, a former minister of labour in Laurier’s Cabinet, an anglophone who had remained loyal to the old leader. The candidate paid a predictable price for that loyalty in imperialist Ontario. Two years later, however, William Lyon Mackenzie King would go on to win the Liberal leadership, thanks to the support from francophone delegates who remembered his loyalty to Laurier.

King would become prime minister in 1921 and for the next two decades would make national unity his holy grail. To keep the Dominion safe from any future conflagrations across the ocean, he would wrench control of Canada’s foreign policy from the lethal imperial grip and then ensure that his country’s foreign policy was a masterpiece of evasion and circumventions and hesitations and inaction—and most Canadians would agree with his approach for a very long time until another world war tore apart that conventional wisdom. For a deeper dive, please read “Embattled Nation: Canada’s Wartime Election of 1917” by professors Patrice Dutil and David MacKenzie (Dundurn Press 2017).