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The Progressive Economics Forum

Promoting Trade and Signing Free Trade Deals are NOT the Same Thing

DFAIT’s web site currently lists 18 different trade deals currently “in play” (and that doesn’t count the Trans-Pacific Partnership, where Ottawa is so far just flirting). But Harper’s push to sign as many FTAs as possible while he has a majority will not improve Canada’s actual trade, which is deteriorating (both quantitatively and qualitatively) the more FTAs the government signs.  Linked here and posted below is my column in Monday’s Globe and Mail on the distinction between promoting trade, and signing free trade agreements.  Interestingly enough, the comments on the paper’s site are overwhelmingly supportive … more than any other column I’ve ever written, I dare say.  Wonder what that means?

Here’s the column…

As soon as it won its coveted majority, the Harper government put the pedal to the metal on the trade front, with a stampede of new free trade deals.  The Department of Foreign Affairs and International Trade (DFAIT) currently lists 18 different deals in play, ranging from puny (Panama and Jordan) to gargantuan (Europe, Japan, and India).

Anyone who stands in the way of this juggernaut clearly must oppose trade in general.  At least that’s how the Conservatives portray the issue, attempting to brand its NDP opponents as economically illiterate dinosaurs.

There’s a big difference, however, between signing free trade pacts and actually doing something about trade.  Canada’s trade performance deteriorated badly over the last decade.  The quantity of goods and services shipped abroad is 7 percent lower than when the Harper government took office, lower even than back in 2000.  And what we do export increasingly consists of raw resources (especially oil).  Our once-impressive trade surplus has melted into deficit.  Despite accelerating petroleum sales, we’re running up international red ink at the rate of 3 percent of GDP per year.

Free trade deals already cover 70 percent of Canada’s trade – yet the more pacts we inked, the worse our performance became.  I’ve reviewed our five longest-standing trade pacts: with the U.S., Mexico, Israel, Chile, and Costa Rica.  Canada’s exports to them grew more slowly than our exports to non-free-trade partners, while our imports surged much faster than with the rest of the world (see table).  If the policy goal (sensibly) is to boost exports and strengthen the trade balance, then signing free trade deals is exactly the wrong thing to do.

Indeed, it could be argued that it’s the current government, not free trade critics, which is “anti-trade.”  For example, DFAIT employs hundreds of bureaucrats who travel around the world negotiating trade deals.  But the department plans to axe 53 commerce officers who actually work with Canadian businesses to boost exports.  Meanwhile, CBC reports that 4 Canadian consulates or trade offices in the U.S. (by far our most important export market) will be closed.

Ottawa trumpets its latest free trade pact (with Honduras) as evidence of a commitment to trade.  Honduras is an impoverished quasi-dictatorship, where journalists are routinely assassinated.  Canada sells less than $50 million there per year (while importing four times as much).  We export more to America in 88 minutes than to Honduras in a year – yet as we ink this blockbuster deal with Honduras, we close trade offices in the U.S.  What’s the net impact on trade?  Clearly negative.

Ottawa’s endorsement of an overvalued currency (trading 25 percent above purchasing power parity) also hurts Canada’s exports, forcing economic activity into lower-productivity non-tradable sectors of the economy.  Even the plan to ram through new bitumen pipelines, seemingly all about exports, may undermine our overall trade performance: we won’t refine the stuff here, and we won’t make the mining machinery here, so our capacity to produce higher-end products (including for world markets) will further diminish.

Ultimately, the proof is in the pudding.  Total exports of goods and services were equivalent to 31 percent of Canada’s GDP last year – down from 38 percent when the Harper government was elected (and 46 percent in 2000).  If the goal is truly boosting trade (as opposed to enshrining business-friendly economic rules, or propping up authoritarian governments in Latin America), then this government is failing miserably.

Canada’s export failure cannot be blamed on foreign trade barriers.  Instead, we must look in the mirror: at the structural inadequacy of our business sector.  Canada has chronically failed to nurture and develop domestically-based, globally-active firms that produce innovative, high-value products for world markets.  Working to fix that problem (through pro-active technology, innovation, and sector development strategies) would do more for our actual trade than all the free trade talks in the world.  If you truly believe in trade, don’t be distracted by the trade deals.

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Comments

Comment from Francis Fuller
Time: May 22, 2012, 7:30 am

A good example of the negative effects of “free-trade” can be found in the present day Euro area crisis.

What you find is one very strong exporter nation, Germany, and a peripheral group of weaker nations all of which exhibit high debt levels and high unemployment. Germany prospered by virtue of her abilty to export to the euro periphery. The periphery appeared to prosper as joining the euro area permitted states to borrow at low rates of interest. Greece borrowed and then used the funds to by German military hardware and German light rail transit systems etc.

If you look at the fundamentals of the German economy you find very tight collabration between the education system and the unions and the capitalists. This mode of social organization is unique to Germany. This is exactly the degree of interaction that Harper would despise as it represents social democratic principles not neo-liberal ideology.

The only way to compete with Germany would be to model society along German lines with strong unions collaborating with business owners and technical colleges. This is the complete opposite of what Harper is doing to Canada.

Comment from ken
Time: May 22, 2012, 11:40 am

And here I thought central Canada’s problems stemmed from their stupid labour laws, low productivity and poor quality products. Those rusting CAW vehicles are all in my imagination. And so are those Japanese models with the high resale values. It really is the governments fault. We must sent more inter-provincial welfare (aka “equalization payments”) to prop up dying industries and dying unions!

And let’s go back to the days of big tariff protection too. That way we can have more low quality high cost products.

Comment from Dan Tan
Time: May 22, 2012, 4:51 pm

…said Ken before his Toyota “unintentionally accelerated” into a negligent oak tree.

Lucky for Ken, the ensuing whiplash cured his selective memory loss & general sense of grumpiness.

Ken wrote to the Japanese government…thanking them for the “big tariff protection” & “propping up of industries” which produced his “quality products”.
http://www.washingtonpost.com/wp-srv/style/longterm/books/chap1/badsamaritans.htm

Ken also wrote to the hundreds of thousands of Japanese union members working at Toyota/Honda/Nissan…thanking them for building those “Japanese models with the high resale values”.
http://www.jaw.or.jp/e/

Comment from Purple Library Guy
Time: May 22, 2012, 9:14 pm

Ken: Evidently, you thought wrong–about the labour laws anyway.
Equally evidently, you didn’t read the article for comprehension, since it attacks, basically, lack of productivity and low-quality products. It’s just that the author is less naive than you about how to fix that. Hint: Turning into a third world country (cheap labour, no government intervention) does not lead to amazing productivity or high-quality products.

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