Trade Tension Awaits Elected Government: Will Canada Step Up or Step Out?

socialistproject | David Kotz

October 21, 2019, marked the date when Canadians once again lay their future in the hands of Trudeau’s government. It is reasonable to assume that there is no better time to talk about Canada’s international relations than now, given the fact that the government hadn’t been able to do much to restore Canada’s international reputation as promised throughout its first term.

Having to sustain an economy that relies substantially on trade has always been high up on Canada’s list of priorities, especially in an era where the global economic picture is rapidly changing. Amidst the rising political and trade tensions between the U.S. and China, the world’s pre-eminent markets and two of Canada’s largest trading partners, it has become more challenging to guarantee a damageless future for Canada’s economy. Meanwhile, current geopolitical upheaval around the world sees power relations being shifted into the hands of emerging powers. Economically powerful countries are willing to each go their own way when their national interest is at stake, whether or not this would result in a disruption of international order. With China and U.S. at each other's throats, Britain leaving the European Union, and Iran and the U.S. nearly going to war, perhaps it’s time for Canada’s leading party to leave the hope of maintaining and strengthening international order behind as the stable world economy, which would be most favorable for Canada’s trade relations, is no longer in sight. The ultimate question then comes down to how the upcoming Canadian government chooses to respond to both the shift in global power and the protectionist measures of its neighbor, keeping in mind the congruence of Canada’s foreign policy to its domestic interest.

Any discussion of Canada's foreign economic policy would be insufficient to not mention the Canada - U.S. trade relation that is among the largest bilateral trade relationships in the world. Canada’s long-time dependence on the U.S. is a result of its pro-American attitude both politically and economically over the years. 2018 numbers show up to 432.7 billion dollars in export to the U.S., far above any of its other trade partners. However, this relationship is far from equal. Canada - U.S. trade makes up 68.2% of Canadian exports, while this number is only 14.2% for its partner. This means any tension between the two countries would do much more harm to Canada than the U.S. Under the Trump government, which focuses on its America First chauvinism and is less interested in establishing peaceful international relations, Canada’s economic policy faces the serious risk of being pressured to compromise to fit some outside country’s benefit. This places Canada into the position of a client state: “a state that is economically, politically, or militarily subordinate to another more powerful state.”

Regarding future affiliation with the U.S. and other countries in terms of trade, there are two paths Canada could go: it can step even closer to the U.S. and strengthen its pre-existing relationship, or make the choice to step away to reduce its dependence. Either way, there are consequences to explore.

It would make sense if Canada continues to enhance its trade relations with the U.S. for the future years to come, as a report on global trade patterns shows that regional trade is generally more typical than wider global trade. This is primarily because of the variety of benefits that comes with regional trade; job opportunities and market expansion across the border will improve due to the ease of geographic location and pre-established connections between neighboring countries. As a way to continue enhancing Canada’s regional trade relations in North America, on November 30, 2018, under Trudeau’s government, the USMCA was signed between the leaders of Canada, the U.S., and Mexico in replacement of NAFTA. With millions of jobs and billions of dollars of goods and services on the line, opting in would promise 16 years of economic and trade stability for Canadians. However, the renegotiation is also indicative of how vulnerable Canada is when exposed to the economic pressure from the U.S. Many Canadians believe that the U.S. got the better end of the USMCA, while Canada struggled to negotiate a deal beneficial for its economy, being forced into a take-it-or-leave-it position. Conservative leader Andrew Scheer referred to the renegotiation of NAFTA as a “failure” and that Canada has a “worse deal on NAFTA.” NAFTA 2.0 is a safeguard for Canada’s steel and aluminum industry against the 25% tariff threatened by President Trump, but it is also an evidence of Canada’s lack of voice when confronting the U.S. Such dependence is undeniably alarming for the future of Canada’s economy if its goal is to align foreign policy with its national interest, as the U.S. demonstrated that it will always get its own way in this trade talk with Canada.

Alternatively, if Canada chooses to distance itself with the U.S. as a trading partner, it could turn to other countries, amongst which China seems to be the most valuable partner in terms of the export market, apart from the European Union which still has Brexit to deal with. China’s large market is a possibility for Canada’s diversification goal, but a walk along this path is also predestined to meet some serious obstacles. The U.S.’s hostile attitude toward China forces Canada into a difficult position where it needs to take a step back before considering any relationship with the U.S’s rival. In fact, the USMCA would give the U.S. and Mexico the power to impede any future Canada - China relation, under Clause 32 which states “at least three months prior to commencing negotiations, a party shall inform the other parties of its intention to commence free trade agreement negotiations with a non-market country.” A future trade talk between Canada and China, therefore, seems highly unlikely under Trudeau's government, especially if the USMCA is to be ratified. Surely, China is not the only alternative trading option out there, but any plans toward trade diversification should be taken one step at a time, in light of the current unpredictability of global trade.

While trade diversification is the right step towards helping Canada gain its economic independence, it is not an easy task and requires cautious planning. Now that Trudeau has been re-elected, it is safe to assume that the Liberal government will continue to push for ratification of the Agreement. With the Liberal winning a minority government, it is still unclear whether the USMCA will be ratified, as opposition parties have yet to indicate their response to the matter. The Conservative Party, despite having criticized Trudeau’s “failure” in renegotiating NAFTA, has not announced its intention to either ratify or renegotiate the deal.

The 2019 election is Canada’s opportunity to recalibrate and reweight the importance of its national interest, which can be pursued through increasing trade independence that grants it the power to self-determine. However, as for now, Trudeau’s government seems to have chosen to continue down the path of reinforcing the current Canada - U.S. trade relation through the USMCA. This is not too unreasonable of a plan for the moment. In light of the U.S. - China trade war and a protectionist approach imposed by President Trump in the U.S., Canada has too much to lose if it extensively goes separate ways with its largest trading partner, a decision that would possibly jeopardize the trade-reliant Canadian economy which could take decades to recover and rebuild from the detachment. Canada could seriously benefit from a reformation of its foreign policy, taking into account the unpredictable power shift and the instability of global trade that leaves it more susceptible than ever. It is up to the recently elected Canadian government to give its people a full disclosure on the matter at hand.