Tuesday, 19 December 2017

Canada: A Nation of Trade Morons?

English classical economist David Ricardo (1772-1823), put forward the theory of international trade, called the theory of comparative advantage.  It forms the basic claim of economists that free trade operates to the advantage of every nation, the advanced as well as underdeveloped or oppressed nations. But today, more often than not, politics is interfering with the basic objectives of the theory; this is clearly more evident in Canada.

Since 1994, when the North American Free Trade Agreement (NAFTA) came into effect, we have seen strong economic growth and rising prosperity for Canada, the United States, and Mexico. NAFTA, like other Trade Agreements has shown that free trade increases wealth and competitiveness, and delivers real benefits to families, farmers, workers, manufacturers, and consumers. However not all participants in free trade have honoured their agreements. In many instances we still see trade deficits among participants. It is one of the reasons for Trump’s demand for a re-negotiation of the current agreement.

While Trudeau’s government is trying to play hard ball with the U.S, it is the type of proposals he has put forward that is worrisome. For some observers there is too much emphasis on including ‘progressive ideology’ in free trade agreements. Instead of really negotiating the factors of comparative advantage, Trudeau has included the rights of labor, gender, environmental and other social issues in the debate. In my view these demands will be obstacles rather than negotiating factors. To Canadians who too often are paying higher costs for too many goods, it is time that we take down some barriers and negotiate in good faith, 

In my view abolishing the soft lumber subsidies and the constant irritants that is supply management will benefit rather than harm Canadian consumers. By the same token we should be negotiating to get better access to more markets in the U.S for the goods that we are better at producing, for example our oil and other natural resources.

It is not only Trudeau who does not understand the benefits of free and fair trade. When it comes to free trade, Canadians have no idea what it means. We are a nation of protectionists. We have barriers for everything; from the movement of labor to the free movement of goods and services. We have more restrictions within the country than we have with other nations. Canada as yet to negotiate a comprehensive free trade agreement among all the provinces, and instead of seeing trade barriers fall, we see more barriers being erected.

Preaching from the environment altar , provinces have started an internal battle against oil from Alberta. Quebec opposes a pipeline east, and BC stands in the way of a pipeline west. We want trade with China but we cannot find a way to get oil to them, while we buy oil for the eastern provinces from a communist regime in Venezuela.

In a political move to protect Bombardier from a trade dispute with Boeing, the Prime Minister chooses to buy used F-18 planes from Australia instead of purchasing new F-35 from Boeing.

 Internally Canada does not fare very well either.  The NDP government of Alberta imposed a tax on craft beer brewed outside of the New West Partnership (British Columbia, Alberta and Saskatchewan). In another case of sheer protectionism, The Supreme Court of Canada will hear a Crown appeal of a New Brunswick ruling overturning a ban on bringing alcohol across provincial boundaries.

In a new twist, Alberta’s NDP Bilous is furious at Saskatchewan over a few trucks and Brad Wall in his last days as Premier gets into the fray and we now have a potential war between the neighboring provinces. It looks as if the days of free traffic flow between Alberta and Saskatchewan are over. Drivers of heavy equipment, trucks, or cars to the work site with Alberta plates instead of the green and white plates of Saskatchewan “will have a week to comply or be sent home.

At home and abroad, the idea of free trade has reached a watershed moment. When PM Brian Mulroney negotiated the trade agreement, he was a leader who understood the concepts of comparative and competitive advantage. But today across the world the forces of populism led by Trump is causing havoc with Ricardian principles. It is not that free trade is bad, but it is the claim that fair trade no longer exists. The progressives have taken over the ideas of free trade to politicize their ‘open border agenda’. Instead of promoting the free movement of labour they insist that it should be the free movement of people, no matter whether they are skilled or unskilled, whether they are legal or illegal. Furthermore trade imbalances and deficits are the main reason for the need to re-negotiate existing agreements.

Unfortunately for Canadians, who in the main are totally uninformed about the ramifications of free trade, are led by a leader who has no concept of Ricardian principles. Instead he seems to be under the influence of some progressive agenda to promote social causes around the world, to the detriment of economic advantages for Canada. He has already botched the TPP and mangled any possible trade with China.

Furthermore, mired in his environmental convictions Trudeau has been unable to get a free trade agreement between provinces. However, Canadians, in general, are to blame for this situation, which may well cost us in the long run. As a nation we are too insular, and protectionist. Understandably we are a small country demographically, but we must open our trade borders internally as well as internationally. We have much to offer, and we must take advantage of our resources and abilities. The 21st century can belong to us, if we embrace free trade
We need real leaders on trade in Canada, not protectionist provincial politicians who would look no further that their next election when making decisions on trade. We need Canadian consumers to understand that there are better ways to reduce prices and costs, and that includes a freer market and the free movement of goods and services.

Instead of following the lead of the mass media and blaming Trump for our trade woes, maybe Canadian trade morons should look in the mirror and embrace the notion that Trump may well save us from ourselves.