Canada Must Join Trump Train or Fall Further Behind

Trade standoff an opportunity for introspection, spring cleaning
September 4, 2018 Updated: September 5, 2018

Fresh research offers ominous news for Canada. An index of labor-market performance across U.S. states and Canadian provinces places all 10 of the latter in the bottom half. It’s the economy, Canada!

For example, the four Atlantic provinces—New Brunswick, Newfoundland, Nova Scotia, and Prince Edward Island—are in the bottom five out of 60. Only struggling West Virginia, in 58th, stopped these provinces from a clean sweep of the ladder’s bottom rungs.

This comprehensive measure, which includes total employment growth and unemployment rates, draws on 2015-2017 data. You can guarantee that Canada will fare even worse when the 2019 edition is released, and includes data from the tenure of President Donald Trump.

Instead of aligning with Trump and pursuing a growth agenda, however, Canadian Prime Minister Justin Trudeau is “virtue signaling” to garner “Trump hate votes,” as explained by Manny Montenegrino, CEO of Think Sharp in Ottawa.

Such a stance is set to drive more workers and investment away from the Great White North.

Where Trump, Trudeau Part Ways

One form of this anti-Trump virtue signaling comes in the no-compromise position on Canada’s dairy and poultry cartels, protected by egregious tariffs and domestic-supply quotas. Trudeau and his opposition counterpart, Andrew Scheer of the Conservative Party, are willing to put the North American Free Trade Agreement (NAFTA) in jeopardy over 11,000 spoiled, inefficient dairy producers.

Meanwhile, the Mexican president and president-elect have already overcome any rhetorical and personality differences to hammer out a deal with Trump.

The time has come for a reality check before Trudeau’s dangerous game of chicken has devastating long-term consequences for the Canadian economy. Retaliatory tariffs from the Trump administration against Canadian-made automobiles threaten 190,000 workers, and that could just be the beginning.

Canadian officials need to recognize that one of their nation’s greatest economic strengths is also her greatest vulnerability. Canada borders the world’s most dynamic, powerful, and successful economy. The United States is a voracious consumer that buys a whopping 74 percent of Canada’s exports.

Compare that with 16 percent of U.S. exports that go to Canada. The United States needs Canada a lot less than the reverse. This places Canada in a vulnerable position that compels humility.

End Supply Management Already

The euphemistically termed supply management is just the start of Canada economic malaise. This cartelization happens to be in the crosshairs of NAFTA, since it blocks out U.S. producers. However, as Martha Hall Findlay of the Canada West Foundation points out, supply management ought to go, “not because Trump says so, but because it is in Canada’s best interests.”

You might realize that, given the fear-mongering from the cartel members. In a blatant example of the broken-window fallacy, they tout the potentially “devastating” impact on farmers and the negative “ripple effect” if this Soviet-style system were to go.

What about the positive ripple?

At present, Canadians pay inflated prices on the subject items, including milk, cheese, and eggs. The end of supply management, therefore, would be “as good as a tax break on grocery items that most Canadians consider to be pantry staples,” as highlighted in a Toronto Sun column by Mark Bonokoski.

The unseen effect here, not talked about by the cartel members and apologists, is the heightened purchasing power of consumers. They will then have more discretionary income available to spend and invest elsewhere, thus expanding the Canadian economy in a productive manner.

There is also a glaring counterexample that supply-management apologists ignore. In 2000, Australia deregulated its dairy industry and abolished the State Marketing Authorities. The results, wrote Jon Berry and Alan Oxley of the Vancouver-based Fraser Institute, “have been unambiguously positive.” Prices fell to the immediate benefit of consumers, and a more dynamic industry—unencumbered by the state’s middlemen—restructured, responded to demand signals, and learned to compete on the world stage.

Australia now exports half of her dairy output, and that generates $3 billion annually. Berry and Oxley add that this industry is set for even more growth, as producers embrace trade deals as commercial opportunities rather than threats.

Beyond NAFTA, for Canada’s Sake

The standoff over supply management is a symptom of much deeper problems in the Canadian economy, as evidenced by the Index of Labour Market Performance. Those who feast on the largess of federal and provincial governments stand in the way of overdue market liberalization.

The level of cronyism across both major parties came to a head last month when prominent Member of Parliament Maxime Bernier elected to depart the Conservative Party. Bernier of Quebec, who narrowly lost the leadership race in 2017, is now building a new party devoted to the “free-market conservative philosophy.” There will be no supply management where he is going.

The classical liberal, in his resignation statement, wrote that “A Conservative party that supports free markets should also advocate the end of corporate welfare. …Canadians are tired of paying taxes to bail out Bombardier, Ford, and other businesses.”

Whether he uses Trump’s vernacular or not, Bernier is a threat to the swamp. He also realizes that Canada must work with the United States and, gasp, compete with her, too.

Beyond Bernier, though, there is a rising awareness that there are structural problems with the Canadian economy. Most notable among them is the vast feel-good redistribution scheme known as equalization, which explicitly takes from successful provinces and rewards have-not provinces. Not surprisingly, this approach keeps the recipient provinces poor and incentivizes residents to remain where employment prospects are bleak.

The current trajectory of inefficiency, if left untouched, will lead Canada further away from international competitiveness. The entire nation will become more depressed like the Atlantic provinces.

Two Areas for Change

NAFTA negotiations offer an opportunity for Canada to reflect on how to better compete and develop a robust economy. Sealing the deal, of course, is an important first step. However, if free trade is the goal—knowing it offers win-win exchanges—two notable impediments remain (in addition to equalization reform).

The C.D. Howe Institute, a Toronto-based think tank, recently made the sensible case for “further openness and transparency” towards foreign direct investment (FDI). Canada’s performance in attracting FDI “has been lackluster of late,” with investment outflows outstripping inflows since 2013.

Capital accumulation is pivotal for economic development. It aids trade based on comparative advantage, and foreign firms offer better-paying employment to Canadians. That is why this trend, with a gap of about $60 billion in 2017, is so troubling, and it hasn’t happened by accident.

Even if Canadians pride themselves on being an open nation, a ranking from the Organization for Economic Co-operation and Development places Canada 32nd out of 35 member nations for openness to FDI (with an index score on par with Russia). Canada can and should rectify this shortcoming by getting rid of the opaque “net benefit” test for large FDI transactions and open up more sectors that don’t have clear national-security risks.

The second problem to dispense with is entirely self-imposed. Not only does Canada have work to do on being more open and hospitable to international trade, the provinces have a myriad of barriers to domestic trade across the country.

This led to the famous “free the beer” court case, in which a New Brunswick man challenged a $220 fine for bringing 14 cases of beer from Quebec. He lost, and so did Canadians.

Since the Canadian Supreme Court won’t defend the liberties of constituents to shop and travel as they see fit, the responsibility lies with provincial premiers. Many declared their support for removing such barriers, as noted by Marco Navarro-Génie and Alex Whalen of the Atlantic Institute for Market Studies. However, that talk has come to maybe “one small step on alcohol”—a potential raising of cross-border limits—”and no leaps at all for liberalization.”

They offer a cogent reminder to both Trump and his Canadian counterpart, along with the provincial premiers: “With the right disposition, any free-trade deal can be written on the back of a napkin. You remove all restrictions and parties can trade unencumbered.”

Fergus Hodgson is the founder and executive editor of Latin American intelligence publication Antigua Report. 

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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