The pharaohs did it. English kings do it. Every govern- ment does it. Let’s all do it, let’s fall in love…with bashing foreign trade. Second only to a war abroad as the best distraction from problems at home, the most venerable political device for a candidate or a government in trouble is to blame wicked foreign traders for domestic economic ills.
The Rosetta Stone records that the good pharaohs defend- ed the interests of local business over foreign traders. The Magna Carta required English kings to respect the tariff rights of local barons over foreigners. And American governments from George Washington to George W. Bush have succumbed to trade bashing when it served a short-term domestic agenda. In Bush’s case, attacking foreign steelmakers so outrageously, in order to protect Republican mid-term election prospects and America’s failing local producers that he nearly launched a two-front trade war with Europe and Asia.
Canadians were players at this ”œbeggar thy neighbour” game for most of our history, but we seem to have given up the addiction. Sadly, we may have swapped fighting trade skirmishes with the Americans for complacency about the protections that NAFTA delivers from their America-firsters. The foolishness of that complacency is starkly revealed by the proposed ”œsale under duress” of MacDonald, Dettwiler’s Canadarm and related space assets to American investors " a painful prospect for further consideration below.
US Democratic presidential candidates were at it again this spring. This time foreign traders became NAFTA benefi- ciaries. No one much noticed or cared when John Edwards and Bill Richardson were blaming NAFTA for American eco- nomic woes this past winter. Dick Gephardt and Paul Tsongas had made many of the same shopworn populist attacks on the inimical impact of free trade in the first Bill Clinton election in 1992. Clinton the First had the wit and the gravitas not to fall into the trap they set for him among worried working-class Democratic voters.
Sadly, Hillary Clinton has shown none of the same smarts as her husband, nor has Barack Obama. Both have committed to a level of NAFTA attack that will humiliate them in office, and do little to get them there. Campaigning in the Rust Belt states where steel, auto and manufacturing jobs have been decimated, it is easy and cheap politics to assuage the angry unemployed by blaming foreigners. It has little to do with eco- nomic reality, however, and even less to do with NAFTA. Canada-US trade has boomed since its passage.
Even in Ohio, where Clinton and Obama descended to populist insults against each other and ”œdisloyal compa- nies,” trade with Canada has grown much faster than either the local economy or their trade with anyone else.
Fortunately, appeals to crass nationalist sentiment as the basis for ”œa small war” abroad are no longer as effective as in the good old days. Maggie Thatcher’s Falklands adventure, at the nadir of an embarrassing British recession, was per- haps the last, and it was a quarter of a cen- tury ago. Trade wars, however, look set to run and run. Even a nation like the UK, built entirely on trade, fought imported wheat and brought down a government over it, at the time of the Irish potato famine when ”œforeign wheat” would have saved thousands of lives.
It is so counterintuitive to the reali- ty that most developed nations are built on trade, that it is important to try to deconstruct the roots of this recurring prejudice. As Nayan Chanda says, in his riveting book on the history of trade and globalization, Bound Together, trade and wars over it are as old as human his- tory. Anatolian traders in the eighth millennium BC, more than 10,000 years ago, travelled thousands of miles to buy and trade obsidian for tools and weapons. In Buddha’s lifetime, Athenian traders’ gold coins circulated in India. Traders were regularly attacked by governments, spurred by unhappy local monopolists. When Charlemagne was crowned the Holy Roman Emperor, Chinese traders fought to hold their monopolies in East Africa, only to be forced to stay home by a Chinese emperor worried about ”œforeign cultural pollution,” imported along with the spices and ivory.
”œHold on,” one might fairly com- plain, ”œthose were not ”œfree trading” relationships! They were tariff-protected monopolies designed to preserve the greatest benefits for the home markets.” Indeed, many of those reciprocal trad- ing relationships were created by exploitative empires extracting spices, minerals and slaves from one part of the world for the benefit of the rulers of metropolises far away. The domestic political temptation to defend the home team was no different, free trade or no.
Canada was built on such an impe- rial foundation, first as a colony supply- ing timber and fur protected by the Royal Navy, and later as a manufacturer and food exporter protected under the system of ”œBritish imperial preferences.” Canadian politicians from Macdonald to Trudeau made great political capital attacking ”œcontinental trade” as simply American corporate designs on Canada. With the exception of the NDP, most Canadians gave that up with the success of first the FTA and then NAFTA. Our governments now have a window to make the case for the shared benefits of an open trading system unique in Canadian history.
Why do so many Americans con- tinue to succumb to the siren song of those who would blame ”œfor- eigners” for domestic economic ills? First, having international trade at the centre of one’s economic survival is a rel- atively new experience for the United States. As recently as the 1970s, trade mattered less to the United States than to any other developed nation. Protected by oceans on two sides and with quies- cent political and economic neighbours, north and south, America’s vast internal economy was astonishingly self-suffi- cient. Not until the massive restructur- ing unleashed by the second oil shock in the 1980s did the US become a big player in international trade.
While Germany, Japan and the UK had depended since shortly after the war for between 25 and 40 percent of their GDP on trade relationships, America’s dependence on international trade broke 20 percent only in the 1980s. It has continued to climb at a steady rate ever since. American multinationals were slow to shift production overseas, but were typically fast learn- ers. General Electric now has several business divisions headquartered outside the US, an unheard-of decentral- ization for a typical American multinational a generation ago.
America’s multination- als are dominant in many countries and in many global economic sec- tors, but their perspective on the glob- al economy was from Minneapolis or Chicago and their power rested on a massive US market more than any of their competitors. While companies such as Nestlé, Shell and Siemens have had a century or more of honing their international empires, of balancing their production and sales on a global level, it is only this year that IBM " one of America’s oldest international success stories " earned more from sales outside the United States than at home. Even this depiction of United States exposure to international trade is misleading since a large percentage of it was really continental or regional. Remove Canada and Mexican trade from most American corporations’ international trade figures and they look like much less impressive global players than Sony, Nokia or HSBC.
A second factor, embarrassing to many American multilateralists, has been their determination to remain exceptionalist in international trade, security and diplomatic relations. The US helped found the General Agreement on Tariffs and Trade, the predecessor to the World Trade Organization, and then hesitated about joining. It helped negotiate the Multi- Fibre Agreement, a device whereby northern industrial economies shielded themselves from the burgeoning tex- tiles exports of the Third World " only to bring ”œdumping” charges against those same producers on a regular basis. As an aggrieved Asian statesman, faced with yet another American trade action against his country’s puny clothing sec- tor, put it, ”œIf you can make the com- puters and rockets, perhaps you’d let us make the socks and underwear.”
Free trade and agriculture are not words often seen in the same sentence. The massive subsidies paid to farmers across the northern economies remain the curse of further international trade liberalization, along with battles over trade in services. The death knell of the Doha round of WTO negotiations has been the refusal of American, European, Canadian and Australian negotiators to give up their food export subsidies. In America’s case, even crops far more productively delivered by warmer climes, such as sugar and cot- ton, are heavily protected. Japanese urban dwellers pay nearly 600 percent over the global market price for rice to protect their aging farmers.
Some trade economists claim that Canadians pay nearly double what milk, eggs and cheese would cost as imports, as a result of our sys- tem of supply management: that is, subsidies and quotas for Canadian producers. Fewer than 10 percent of workers " by the most liber- al definition " are farmers in Canada or the United States, yet urban voters pay this sig- nificant hidden tax with little apparent resistance.
NAFTA did change relations between the three economies, and the losers were more often the weakest and poorest, especially in Mexico. By giving new incentives to scale, by opening a market of half a billion people for many goods and services, it shoved aside many smaller players. Canadian furni- ture makers, small to mid-sized pushed to the wall by larger economic players. Would they have survived without subsides and without NAFTA? For a while, perhaps.
The wrenching changes that global- ization is forcing on every economy are the real villain. It is China, India and Brazil that are responsible for the death of the furniture and textile sectors in North and South Carolina, not Mexicans. Canadians had virtually nothing to do with the decline of the auto parts sector in Ohio; Ontario’s own players in that space are reeling under unprecedented cost pressures themselves. The global economy is shifting west once again. Philadelphia iron and steel makers devas- tated Manchester and Birmingham in the 19th century. Shanghai and Mumbai are replacing the American and European producers today. Politically, it is much easier by far to blame NAFTA.
Which brings us to the dreadfully named mini-scandal NAFTA-gate. At the end of February, as the Ohio pri- mary became the most important showdown between Barack Obama and Hillary Clinton, and as the American housing and credit crisis continued to shake consumer confidence, strategists in each campaign searched for ways to make their economic message resonate with worried voters. To their discredit, both campaigns leapt on the anti- NAFTA bandwagon as the hook for their positioning against the Bush administration’s economic track record.
Both candidates had flirted with NAFTA bashing as a tool earlier in the pri- mary season, but it was in the trench warfare in Ohio that Obama’s advisers attempted to make him the ”œgenuine anti-NAFTA” candidate. Pressed by Tim Russert during a candidates’ debate, Hillary Clinton climbed on board. Both candidates improbably committed them- selves to ”œrenegotiating NAFTA within six months” or unilaterally withdrawing.
This was breathtakingly irresponsi- ble politics, given the centrality to all three economies of the network of agreements that make up the NAFTA system. Most pundits pooh-poohed it as campaign rhetoric, and the pledges made surprisingly little impact in Canada, probably the partner with the most to lose. It took a passing remark from Prime Minister Harper’s chief of staff, Ian Brodie, in a budget lockup dis- cussion with a reporter, to set off the firestorm that became NAFTA-gate!!
Brodie, foolishly, dismissed the claims by the two candidates to a reporter, saying that the Government of Canada had been assured by the Clintons that the NAFTA bashing was just campaign noise. He was misin- formed: Canada’s consul-general in Chicago has been reassured by the Obama campaign to that effect by one of its senior economic advisers.
All hell broke lose when CTV reported, following a conversation with Canada’s meticulously circum- spect Washington ambassador, Michael Wilson, that the ”œdon’t worry about it” message came from the Obama cam- paign. The news was blasted by the opposition as political interference in the US election. Indeed, Obama did lose Ohio more badly than predicted a few days later. Clinton’s much-unloved senior strategist, Mark Penn, made heavy use of the Obama gaffe, and admitted that it contributed to her piv- otal win on March 4.
To add to this comedy of errors, a Department of Foreign Affairs memo on the original conversations between a Canadian diplomat and the Obama adviser that had set the original fire burning was then leaked. Now, leaked diplomatic memos are hardly rare in international affairs, but they are usu- ally ”œbrown-enveloped” to tilt public opinion in favour of the leaker or to damage an enemy. This leak was a shot to the head of its Canadian authors.
It was probably imprudent for the Georges Rioux, the Canadian diplo- mat, to ask an Obama economic adviser about the NAFTA comments in the first place. There is an old axiom in diploma- cy that you don’t ask questions that are likely to embarrass you no matter how they are answered. There was no comforting answer possible to this query.
Sure, he may have been building a connection to a future player in an Obama administration, but the subject was already toxic. It was even dumber to permit the repetition of Professor Austan Goolsbee’s assurances that there was nothing to worry about in a memo. Any actionable news that emerged from those discussions should have been communicated verbally with only diplomatic bafflegab in written form. After all, an official diplomatic memo claiming that a possible future American president was playing political games with Canada-US trade relations could hardly be expected to remain a secret.
It was a hanging offence to permit this dangerous bit of diplomatic gossip to be copied, by a junior consulate scribe, in writing, to 18 direct recipients! An ad in the Chicago Tribune blaring ”œCanada says Obama is a phony!” could not have been more effective in ensuring wide currency for the message. It was reported that the memo went to 150 people within government before being inevitably leaked to the Associated Press. Given its content, and the single key- stroke required to send it spinning to your favourite e-mail pals, it’s surprising only that it took a few days to emerge.
The opposition has declared that that was a deliberate effort by the Harper government to help the Bush administration and its candidate John McCain. They have demanded Ian Brodie’s head in recompense. The Prime Minister has promised a ”œfull investiga- tion.” Brodie’s head won’t roll, and the investigation will dribble into nothing- ness by the summer, if it takes that long. For it is painfully clear that this was a product of simple ordinary incompetence, not conspiracy. It would be an improbably bone-headed move by any Canadian government to play these sorts of games intentionally. The Harper government, ironically, has attempted to make a more professional management of Canada-US relations one its hallmarks.
The list of stupidities in this silly but damaging tale is as long as your arm.
The appropriate response of Canadian officialdom, having watched the fever of ”œanti-free-trade” rhetoric bubble up in every primary season since 1992, only to see the fever pass with the coming of spring, should have been a small ironic grimace if asked for com- ment. If Ottawa really thought that this year was different and some candidate needed a rap on the knuckles, then a quiet chat with a trusted American intermediary would have sufficed. That would have been the approach of a pro like former ambassador Allan Gotlieb. (Although Ambassador Wilson has remained appropriately mute since the fiasco unfolded, given his zipper-lip reputation, it is highly improbable that he was the source of the leak.)
The Prime Minister, in attempting to put a lid on this series of gaffes, could have simply apologized and said he would ensure that the appropriate inquiries and punishments would fol- low. Instead, he could not resist baiting the opposition into an unnecessary week-long frenzy.
But there is an opportunity in this tawdry tale. This could be the moment when Canadian government depart- ments begin assembling the details and illustrative stories about the benefits that have flowed to our economy, and to our partners, from NAFTA. They could begin a series of quiet conversa- tions with Canadian business leaders and the provinces about a fall campaign on Canada-US relations. Official Ottawa could not be seen to champion the mer- its of free trade in an election environ- ment where it was a divisive issue. The Canadian Chamber of Commerce, the Canadian Council of Chief Executives and the Canadian Manufacturers and Exporters need not feel so constrained.
The decision by MacDonald, Dettwiler and Associates in Vancouver to vacate the space business, placing Canada’s leadership in telecommunica- tions satellite technology in American hands, should also have rung alarm bells. As market watchers noted, the rea- son for the sale was that MDA believed that it could not earn equal treatment as a supplier to the US defence sector as a Canadian company. That EADS, the European parent of Airbus, won a multi- billion-dollar US Air Force maintenance contract days later was additional salt in Canadian wounds. For the corollary message is that you can earn equal treat- ment if your sponsoring governments are big enough not to be denied, and Canada isn’t.
As many expert observers, in recent issues of this journal and else- where, have said with increasing anxi- ety, easing trade frictions requires constant effort. The temptation to allow new barriers to emerge, to protect this weakening domestic industry or that and to blame every closed plant on ”œbloody foreigners” is permanent. The process of trade liberalization moves forward, by slow increments, or it slides toward protection. There is no reliable status quo, no matter how rock solid the protections of trade agree- ments or legal precedent may seem.
No matter who occupies the White House next year, it is long past time for leaders in Canada and Mexico to once again nudge the United States toward a more open continental economy. The foolishness that was NAFTA-gate this spring could not have been a more powerful warning about the need.