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Steven Globerman: Canadian policymakers should increase free trade at home as protectionism clouds gather

Commentary

The Republican primary is over—not surprisingly, Donald Trump will be the party’s candidate in the presidential election in November. A second Trump presidency, which would likely mean more protectionism by the United States, would be bad news for Canada. Indeed, if elected, Trump has promised to impose an across-the-board 10 percent tariff on all manufactured goods exported to the U.S.

At the same time, Trump’s prospective Democratic opponent, President Joe Biden, has also embraced “America First” trade policies including the provision of massive federal subsidies to encourage domestic investment in several industries including electric vehicles, semiconductor chips, and transportation and clean energy infrastructure. Biden’s strong support for unionized U.S. workers further signals that a second Biden term would pose a serious threat to Canada, as the U.S. is by far the largest foreign buyer of Canadian exports.

The Trudeau government is clearly aware of the threats posed to the bilateral trade relationship, and Canadian diplomats have mobilized to generate support for the Canada-U.S.-Mexico Trade Agreement among state and local politicians and business and labour leaders in the U.S. The agreement is scheduled for a tripartite review in 2026 and U.S. officials may balk at renewing the agreement, especially under a Trump presidency.

The Trudeau government has also sought trade diversification to reduce reliance on the U.S. through initiatives such as the Indo-Pacific Trade Strategy. However, the physical distance between Canadian-based exporters and potential customers in Asia creates higher transportation costs and logistical difficulties compared to doing business in North America. Political tensions between Canada and the governments of China and India, the two largest potential markets for Canadian exports in the region, further diminish the prospects for significant trade diversification.

So, faced with the spectre of more trade hostility from the U.S. and the inherent challenges to trade overseas, what should Canadian policymakers do?

In short, make trade easier here at home. Specifically, reduce barriers to trade, investment, and labour mobility between the provinces and territories by broadening and deepening the existing Canada Free Trade Agreement (CFTA). The CFTA, which came into effect in 2017 and was updated in 2023 with the cooperation of all 13 provinces and territories and the federal government, aims to reduce or eliminate barriers to the free movement of people, goods, services, and investment within Canada.

For example, provinces could eliminate provincial marketing boards, which prevent free trade in specific food items (e.g. poultry products) and dismantle government monopolies at the wholesale level for beer and wine, which effectively protect local breweries and wineries from competition. Provinces could also streamline certification standards for various occupations, making it easier for workers to move around the country. And address diverging financial and securities regulations, which discourage interprovincial commerce across a range of industries.

Danielle Smith, centre, Premier of Alberta; Ranj Pillai, left, Premier of Yukon; and Dennis King, Premier of Prince Edward Island, look on during a press conference at the meeting of the Council of the Federation, where Canada’s provincial and territorial leaders meet, in Halifax, Monday, Nov. 6, 2023. Kelly Clark/The Canadian Press.

In other words, within the CFTA, embed a policy of “mutual recognition,” which would mean that any item of commerce that meets the regulatory requirements of one provincial or territorial government will automatically satisfy the requirements of another provincial or territorial government. Implementing a policy of mutual recognition would effectively oblige individual provinces and territories to drop existing exceptions to provisions of the CFTA (for example, supply management of dairy products, which limits imports to keep prices artificially high). In this regard, the Atlantic provinces currently maintain the greatest number of exceptions. However, Atlantic Canadians would also experience the greatest increase in per-person income levels if trade within Canada became more free. Indeed, if policymakers increase free trade, Canada’s productivity will rise, which in turn will increase the living standards of Canadian workers across the country.

There are obvious political challenges to a more integrated domestic market including a reluctance on the part of provincial governments to eliminate monopolies, such as Ontario’s LCBO, which generates significant government revenue, and lobbying by interest groups to maintain regulations that protect their financial interests. But the federal government should show leadership to surmount these challenges, especially given the uncertain future of trade policy south of the border and around the world.

The Weekly Wrap: Pierre Poilievre’s working-class rhetoric is more meaningful than you think

Commentary

This week‘s edition of The Hub’s Weekly Wrap reflects on some of the past week’s biggest stories, including Pierre Poilievre’s rhetoric deriding the corporate class and championing the working class, political developments around the carbon tax, and what the ongoing revelations of the ArriveCan scandal tell us about the inherent limits of government.

Poilievre’s speech signals a fundamental realignment in Canadian politics

Pierre Poilievre’s speech last Friday to the Greater Vancouver Board of Trade continued to generate a lot of discussion over the past week. It was a notable speech for various reasons, including as he himself noted, it was the first time that he’s addressed a senior business audience since he became Conservative Party leader just over 18 months ago. 

His dismissive comments about corporate lobbyists and strong support for the working class have prompted a lot of questions about what the speech might tell us about Poilievre’s politics and the positioning of a possible Poilievre-led government. For instance, Ginny Roth wrote this week for The Hub about its economic policy implications including the extent to which these populist impulses might conflict with Poilievre’s otherwise orthodox economic views. 

The speech must be understood as part of a broader trend within Canadian Conservative politics in particular and conservatism across the Anglo-American world more generally. It was an expression of a major political realignment. 

Within Canadian conservatism, it reflects a process that started under Stephen Harper’s leadership and has accelerated since his departure. The growing distance between the Conservative Party and the country’s business establishment is a marked departure from the politics of the Mulroney era. 

There are various factors behind it. One is quite practical: the elimination of corporate donations in the early 2000s has led to a decline in the voice and influence of business leaders. Second is a populist tilt in Conservative politics that manifested itself in the Reform Party and persists to the present in the modern Conservative Party. Third is a perceived leftward shift in the corporate community—particularly on issues concerning identity and sexuality—that makes it less of a natural ally to the Conservatives. 

But, as mentioned, these trends cannot be understood as a merely Canadian phenomenon. They’re part of a bigger story of a political realignment occurring across the Anglo-American world in which centre-right parties are increasingly home to working- and middle-class voters and centre-left and even progressive parties are now representative of the professional class. (We have covered the political realignment in various episodes of Hub Dialogues including with David Frum, Eric Kaufmann, Patrick Ruffini, and the late Ed Broadbent.)

Poilievre’s speech was an inherently realignment one. In particular, his message about the working class (“when I’m prime minister, my obsession—my daily obsession—will be about what is best for the working-class people of this country”) signaled that a prospective Poilievre-led government would consciously situate itself in these broader political trends. Like in Great Britain or the United States, the centre of gravity within Canadian Conservative politics is shifting from an entrepreneur to the wage earner. 

What’s interesting though about Poilievre’s realignment strategy is that it’s been part of a mostly orthodox conservatism. His overarching message is still generally about freedom and free enterprise. He hasn’t made major policy deviations from a basic conservatism framework with the exception of recently voting in favour of a legislative ban on replacement workers. 

It may be that a lot of these unconventional Conservative voters are mainly motivated by an aversion to the rise of identity politics on the Left and therefore have somewhat limited expectations from Poilievre and Conservatives on economic or social welfare policies. If so, it’s highly probable that his nods to “anti-wokeism” will remain a key part of his overall message and priorities. 

The upshot: political observers are right to characterize Poilievre’s speech as significant not merely because of what it conveys about him and his politics but also because of what it signals about bigger changes in Canadian politics. We’re going through a realignment. It will shape the next election and define our politics for the foreseeable future. 

Pierre Poilievre, leader of the Conservative Party of Canada, meets with Eliezer Fauni, a trailer mechanic, as he holds a press conference at Gardewine Transport in Winnipeg Friday, January 12, 2023. John Woods/The Canadian Press.
Trudeau’s carbon tax quandary

One of the biggest stories of the week is the growing opposition to the scheduled increase in the carbon tax from $65 to $80 per tonne on April 1. A majority of provincial premiers, including Newfoundland and Labrador’s Liberal Premier Andrew Furey, are now calling on the Trudeau government to suspend the tax hike in the face of ongoing affordability concerns. 

Prime Minister Trudeau and his government have resisted those calls (Finance Minister Chrystia Freeland called them a “net negative”) and rejected claims that their special dispensation for home heating oil late last year creates a fairness expectation for broader relief from the carbon tax. 

In light of these political developments, there’s been commentary in recent days about the causes of the carbon tax’s ongoing unpopularity, including the extent to which the government has mishandled the communications. The prime minister has also sought to make a policy argument that his government’s carbon tax (which uses price signals to influence business and consumer behaviour) is more market-based and less state-directed than the Conservative Party’s plan. 

There may be a communications challenge with the federal carbon tax but the chief problem isn’t that the government hasn’t spent adequately on advertising. It finds its origins back in 2015 when the Liberals weren’t fully transparent about their policy intentions. It may have avoided difficult questions in the election campaign but in hindsight, it laid the groundwork for the public’s disapproval nearly a decade later. 

In a major speech in Calgary in February 2015, Trudeau distanced himself from the top-down impulses of the National Energy Policy and instead committed to a bottom-up climate policy in cooperation with the provinces that could include carbon pricing (“We will set a national standard in partnership with provinces and territories, one that gives them the flexibility to design their own policies to achieve those targets, including their own carbon pricing policies”). The party’s platform used similar language. The clear implication was that a Trudeau-led government would support provinces that adopted carbon pricing but it was far from clear at the time that it would become a non-negotiable expectation. 

The consequence is that the 2015 election didn’t really litigate the Liberal Party’s carbon tax. How could it? The party’s policy, as presented during the campaign, broadly matched the Harper government’s own approach in which B.C., Quebec, and Ontario had carbon pricing and other provinces didn’t. If the Liberals had been straightforward that they intended to impose a national carbon tax with essentially no flexibility for the provinces, one cannot help but think that the 2015 election campaign would have taken on a different dynamic. 

As for the prime minister’s latest claims about the market orientation of the carbon tax, they’d represent a semi-persuasive argument, including presumably among conservatives who ought to generally favour market-based incentives rather than command-and-control regulations and subsidies, but that’s of course not what the Trudeau government has delivered. 

Carbon pricing (including both the consumer and industrial prices) represents something like 20 or 25 percent of projected emissions reductions over the coming years. Regulations and subsidies are doing most of the heavy lifting. Keep in mind that this a government that has announced billions of dollars in subsidies to essentially create an electric vehicle industry in the country and remains committed to a sectoral emissions cap for the oil and gas industry.  

The reality is that the Conservatives and Liberals broadly agree on climate policy with the major exception of the consumer carbon tax, which represents a small and declining share of emissions reductions. They’re both prepared to regulate and subsidize in order to reach the country’s emissions targets—in fact, given that the Trudeau government’s emissions targets are more ambitious than the Harper government’s, there’s a good case that it’s even more prepared to use regulations and subsidies than the Conservatives. 

One way to think about it is: the politics of federal climate policy is a version of the 80:20 rule. There’s a consensus, for better or for worse, on about 80 percent of climate policy and a disagreement about roughly 20 percent of it. 

We effectively have a bi-partisan consensus in favour of regulating and subsidizing our way to something approaching our climate targets. When we look back with hindsight, there’s a strong chance that this week’s mounting opposition to the carbon tax will be seen as having further solidified that consensus. 

Ottawa is too incompetent to be corrupt

This week’s parliamentary committee testimonies of the two principals behind GC Strategies, the company at the center of the ArriveCan scandal, focused a bit unexpectedly on the self-evidently fake testimonials on its website from government officials like the chief information officer or chief data officer of Canada. But these exchanges between Conservative MP Michael Barrett and first Kristian Firth and then Darren Anthony weren’t a digression from the main issues behind the ongoing scandal. 

They reflect the principal problem: federal procurement has become gamed by empty-shell companies—including ones specifically created to arbitrage affirmative action policies—who’ve stripped out significant margins for themselves and then passed off the work to others. 

The web testimonials convey the lack of seriousness and rigour inherent in the federal procurement process. It’s as if Firth and Anthony weren’t self-conscious at all that their rent-seeking would face much scrutiny from government officials. They knew Ottawa was an easy mark. 

Launching the company (which they admitted they named after the Government of Canada) in 2015, they pulled together some buzzwords about “visionaries” and “strategic thinking” and “value for money” and some equally banal bureaucratic job titles and that’s all they seemingly needed to do to win hundreds of millions of dollars in government contracts and be named one of Ottawa’s fastest-growing companies within just three years. 

The whole episode seems to be shockingly simple. At least for now, there doesn’t appear to be evidence of government corruption. It’s rather a case of institutional ineptness and ultimately government failure. 

The fake testimonials should be understood as a symbol of Ottawa’s broader state capacity problem. If the federal government is prepared to award major contracts to a two-person company that cannot even be bothered to make its contrived customer endorsements semi-plausible, how much confidence should Canadians reasonably have about its ability to bring an end to the internal combustion engine or national poverty or any of the other incredible goals that it has set out for itself? The answer is virtually none. 

In this sense, Firth and Anthony may be the inadvertent faces of a renewed libertarianism—a rediscovered skepticism of big government—in the country. Their extraordinary testimonies this week should remind Canadians of the inherent limits of state action and the need for clear constraints on the size and scope of government. 

If so, the $19 million or whatever they ultimately received for the ArriveCan contract, may have actually been well spent. There’s a real testimonial to add to their website.