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The Progressive Economics Forum

The Trade Deficit and Buy Canadian Policy

A standard objection to the Buy Canadian policy proposed yesterday by Canada’s largest industrial unions was that Canada enjoys a trade surplus. Such a policy would allegedly prompt foreign retaliation, erasing our current trade surplus and its contribution to aggregate demand in Canada.

This morning, Statistics Canada reported that we actually ran a merchandise trade deficit in December, the first since March 1976. (Apparently, we really were trading on thin ice.) In other words, Canada’s much-vaunted trade surplus is already gone. International trade is now a net subtraction from Canadian aggregate demand rather than a net addition to it.

Of course, the microeconomic arguments for generally allowing the free movement of goods across borders have not changed, but the macroeconomic argument for “free trade” just left the building. This news underscores the urgency of preventing too much stimulus spending from leaking out of Canada’s economy through a deteriorating trade balance. Such spending should indeed be accompanied by a Buy Canadian policy.

The fact that Canada is already in deficit reduces the potential cost of foreign retaliation. In any case, foreign retaliation is extremely unlikely because our major trading partners already employ preferential procurement along the lines proposed by Canadian unions (and some Canadian business).

Enjoy and share:

Comments

Comment from janfromthebruce
Time: February 11, 2009, 3:05 pm

So we are already in deficit and we have trade deficit. Never heard about that in last fall election – everything was rosie and peachy-keen.
That’s why I’m glad we have Kevin Page – he’s the people’s bureaucrat rather than a politician’s servant.

Comment from Stephen Gordon
Time: February 11, 2009, 3:12 pm

Actually, my objection is that I can’t trace out the logic that says that this will reduce inequality and poverty in Canada.

I can see that it will make a very particular group – one that earns higher-than-average wages, and one that has better-than-average access to the media – better off.

But that’s not really the same thing, is it?

Comment from Colleen Moore
Time: February 14, 2009, 8:44 pm

I can’t help myself but putting in a buy in Canada only policy when the message I’m hearing is people are not buying so I wondering why? Maybe it should read, buy, buy baby buy buy you know during recessionary times. I just seen a group of bicyclist having a gay old time all hanging out spending some lose change at this cafe but spending so maybe a simpler approach just may the answer.

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