The United States is Canada’s major trade partner, and this is something that we have come to accept in recent decades. In fact, we have embraced it with the continental policies of Brian Mulroney and subsequent administrations, as we move toward true regionalization through social and security harmonization. Yet, as the Keystone Pipeline issue has reminded us, there are other markets out there — but how do we access them? This has been a perennial and pervasive question for various governments of Canada. It is the Canadian dilemma – how can we become truly independent?
The idea of North American free trade was a Liberal concept in the 1930s, which arose after the U.S. imposed tariffs under the Smoot-Hawley Bill. At this time, the bill hurt Canada’s trade, forcing it into a position of dependence on the British markets, through the birth of the Imperial Preference System. Though an expedient solution to what would be a temporary problem, it was not entirely to Canada’s economic or political benefit, tying us to the apron strings of our imperial founders. The first NAFTA – the North Atlantic Free Trade Agreement – would be signed in 1935, after the slowdown in Canadian trade hurt the U.S. economy, causing the Smoot-Hawley Bill to be revoked. The writing was on the wall as early as then — the Canadian and U.S. markets were interdependent.
When Britain joined the European Economic Community in 1972, the Imperial Preference System came to an end and Canada was forced to re-evaluate its trade policies. The ‘third option’ became a new policy strategy, as Canada sought to diversify its market options. Trade with the U.S. continued to grow, but the Trudeau government wanted to look to European markets to counter-balance our dependence upon this economy. Though Asia was growing as a market option, we would not truly look that way until after 1988 and the Free Trade Agreement. Europe would be our salvation, as we were historically and culturally linked to there. But it was not to be, and to date we have struggled to formalize an agreement with our European cousins.
Though we have continued to woo the European Union, the Harper administration has courted South America and has looked to Asia too. Neither are new strategies, but they have garnered some fresh attention. Looking at this geographically, and through modern cultural ties, both regions offer opportunities for Canada. Neither economy, however, is set to procure finished, manufactured goods from us. Asia wants our raw materials (just like the U.S. and the EU); South America needs our investment. Yet, there are potential gains to be made for Canadian independence in the long term. Investment into a market could increase our influence, which would allow us more options and control over our own economy. We would still, however, be competing with the other big players, needing to punch beyond our own weight class.
Through all these high-minded strategies, however, something has been forgotten. Trade is like water; it will always take the easiest course. For Canadian businesses then, this means they will naturally seek the U.S. market. And the reality of politics is that when it comes to trade, our government does not lead, but follows. Until Canadian businesses seek out other markets, their attention will be with the U.S. This does not mean that the Canadian government should stop talking to other states, but it must be wary of what it gives away to gain access for markets our businesses have no interest in. As others invest in Canada, so too do we lose influence and control to them.
John Kennair has published on the political/legal dimensions of Canadian-Chilean trade.
