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 Calls for diversification have been replaced by demands for deeper integration.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.
