Canada stands at a critical crossroads. Our economic prosperity depends on international trade and investment, but new global realities are calling into question long-standing policy goals and approaches in these vital areas. An existential threat to the global trading system lies on our southern border, with President Donald Trump intent on fundamentally altering US trade policy to “put America first.” Although the negotiating tactics may change from day to day and the Americans’ exact position remains unclear, the broader objectives are known, and the ripple effects of any significant retreat from a rules-based trading system could bring considerable collateral damage to Canada.
Unfortunately, much of the recent talk in the Canadian media has been reactive and based on short-term calculations, essentially trying to predict what Trump might do on the topic of interest that day. What Canada desperately needs now is a calm, evidence-based discussion that seeks to better understand recent developments (including the factors driving anti-trade sentiment), explores potential responses, and defines longer-term policy priorities to guide us through the current turmoil. In the concluding chapter of the IRPP’s recently published book, Redesigning Canadian Trade Policies for New Global Realities, we offer some starting points for that discussion, by taking stock of the key results and policy insights from a multiyear research initiative.
Our research reveals that the global economy is rapidly evolving. Productivity, innovation and growth at home depend on both exports and imports. Instead of producing goods and services within a single country, businesses increasingly collaborate in global supply chains and use foreign affiliates to serve foreign consumers directly in their markets. Emerging markets such as China and India have quickly become important players, leading to a shift in global power that is one reason multilateral trade negotiations under the World Trade Organization have stalled. Diminished growth prospects, especially since the financial crisis of 2008-09, have led to economic anxiety in many developed countries, including Canada.
Given Canada’s weak international economic performance over the past 15 years, this changing context calls for a renewed, concerted approach to all of our trade policy efforts — including our bilateral relationship with the United States. To help Canadians focus on the essential long-term objectives, even as they attempt to manage short-term risks, we propose four key areas for attention and action.
First and foremost, we must develop more inclusive policies that help more Canadians share in the benefits of globalization and technological progress. An inclusive trade agenda could be a key contributor to broader efforts to deliver more inclusive growth, and is vital to maintaining public support for trade and trade agreements. If Canadians believe that the benefits of trade are concentrated too narrowly at the top, then efforts to use more open trade to promote economic prosperity will face resistance. An important part of trade policy reform is better protection of workers whose jobs are negatively affected by economic dislocation, whether trade-related or not, by strengthening the social safety net and emphasizing skills development and retraining.
Second, we need to unlock new trade growth and improve productivity by facilitating, rather than hindering, resource reallocation. Policies need to allow capital and labour to flow to their best uses — moving them from poor-performing businesses to those that are thriving — and to do so flexibly and quickly in response to changing circumstances in the global economy.
Third, we should promote international connectivity by ensuring that Canadian firms and workers can engage effectively with foreign partners and markets. This means liberalizing both exports and imports; building faster, more efficient customs procedures; and investing in reliable transportation infrastructure and communications networks. The productivity of our firms and workers reflects not only their own actions, but also their connections, networks and ability to work with the strongest partners, regardless of location.
Fourth, Canada must play a leading role in building a more robust, rules-based global trade and investment system. Given the global nature of production, trade and investment, we need to think “multilateral first” rather than building an unmanageable system of overlapping and inconsistent bilateral deals. A multilateral approach is one of the best ways to deepen our links to fast-rising emerging markets, and thereby diversify Canada’s trade and investment. A middle power such as Canada cannot become stronger economically by going it alone.
As we shape our strategy for renegotiating NAFTA, and engage in bilateral talks with China, we should keep these longer-term priorities in view. Canada needs a more inclusive trade policy agenda that facilitates resource reallocation, promotes international connectivity, and builds the foundation for a better global trading system. At this critical juncture, we should keep our eyes on the forest, not on the trees.
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