Canada Must Delink from the US

Canada before and after NAFTA, and after Trump

When the North American Free Trade Agreement was being drafted in the late 1980s and early 1990s, the majority of Canadians did not support it. In a survey in November 1993, just six weeks before the trade agreement took effect, Canadians were evenly divided on entering into the trade agreement with the United States and Mexico, with 43% in support and 46% opposed. However, by December 2017, a solid majority of 71% of Canadians supported Canada being part of NAFTA. Clearly, much had changed before and after NAFTA.

NAFTA was initially negotiated by President George H.W. Bush, with the goal of lowering costs of trade and bolstering North American trade by eliminating almost all tariffs and taxes on imports and exports. The negotiations began when Bush opened talks with Mexican President Carlos Salinas de Gortari, and later included Canadian Prime Minister Brian Mulroney. The agreement was signed in 1992 and went into effect in 1994, after Bill Clinton was elected president. It’s important to note that Canada’s Progressive Conservative party, which championed free trade, went down in a historic defeat in 1993, losing almost all of its seats except two, and losing official party status. The Progressive Conservative party, as such, has not recovered its status since then, having spent years trying to reconstitute a federal conservative party through various coalitions with marginal, more right-wing western Canadian parties. NAFTA did nothing to save the federal Progressive Conservatives, and most likely played a part in dooming them.

Electoral politics aside, let’s revisit some of the damage that NAFTA first did to Canada—before Canada adjusted to the new realities.

Jobs, Manufacturing, Productivity, Real Incomes

In a report on the Canada-US Free Trade Agreement (CUFTA), which was NAFTA’s predecessor, Industry Canada revealed that,

“for the most impacted industries, the tariff cuts reduced employment by 18 percent, output by 12 percent, and the number of establishments by 12 percent. For manufacturing as a whole, the numbers are 4 percent, 2 percent, and 4 percent, respectively”.

Between 1988 and 1994, “Canada lost 334,000 manufacturing jobs, equivalent to 17% of total manufacturing employment in the year before CUFTA came into effect” (CCPA, p. 3). In the years prior to CUFTA, manufacturing productivity in Canada stood at 83% of the US level; however, by 2000, it had dropped to only 65%, “so the productivity gap widened rather than narrowed, as promised by the proponents of free trade” (CCPA, p. 2).

Real incomes declined for most Canadians in the 1990s, with median income in 1999 having dropped by $1,100, or 2%, from the 1990 level (CCPA, p. 4), though not all of that decline was due to NAFTA. The Canadian Centre for Policy Alternatives stated in a report (p. 3) that, “during the first 13 years under CUFTA [the Canada-US Free Trade Agreement] and NAFTA, Canada created less than half as many full-time jobs as during the previous 13 years. Moreover, many of the jobs created during the NAFTA period have been part-time, insecure jobs with fewer benefits, particularly for women”.

Free trade was sold as inevitably leading to a major boost in Canadian labour productivity. The growth in productivity has recovered in recent years, only to match what it was before free trade. Real wage gains continue to lag behind increases in productivity as employers, not workers, reaped the benefits of higher hourly output (p. 2).

The “capital stock” of Canadian manufacturing—“the value of all the equipment, buildings, infrastructure and intellectual property in the industry—is almost 10% lower today than it was when NAFTA came into force in 1994”. When it comes to manufacturing, Canada has fared worse than the US:

Agriculture in Canada has also suffered from the effects of NAFTA, contrary to the mainstream US mythology. The National Farmers Union pointed out that, since 1988, “agricultural exports have almost tripled, but net farm income (adjusted for inflation) has fallen by 24%. Over the same period, farm debt has doubled, 16% of Canadian farmers have been forced off the land, the number of independent hog farmers has dropped by 66%, and there are 2,400 fewer jobs in the agri-food processing industry”. The NFU concluded that free trade agreements “may increase trade, but they dramatically alter the relative size and market power of the players in the agri-food production chain. Free trade helps Cargil and Monsanto, not farmers”. The experience of Canadian farmers clearly demonstrates that “more trade does not necessarily translate into more prosperity” (CCPA, p. 4).

Trade

When it comes to CUFTA, NAFTA’s predecessor, the elimination of tariffs explains the increase of trade. Interestingly, “most of Canada’s increased trade was in industries that had no tariffs in 1988,” when CUFTA went into effect—in other words, the dropping of tariffs did not by itself increase trade.

Heavy truck shipments out of Canada collapsed by 75% between 2006 and 2011. Under NAFTA, Mexico has gone “from a bit player in the North American auto sector to the second-largest participant with almost 20% of total production, compared with Canada’s 16%”. Overall, the proportion of Canadian exports sent to Mexico has grown only modestly under NAFTA, from 0.7% in 1997 to 1.5% in 2015.

Economic Growth

One of the arguments by advocates of free trade was that “it would increase Canada’s disappointing rate of economic growth,” which in the eight years prior to free trade with the US “had averaged only 1.9% per capita per year”. Instead, in the first five years of free trade, “real GDP growth per capita was actually negative, averaging -0.4% a year”. The GDP rate rose after NAFTA came into effect, but “for the entire free trade era has averaged 1.6% annually,” which is still below the rate pre-free trade (CCPA, p. 1).

Capital Loss, Increased US Ownership

Canada has also lost capital to the US, thanks to free trade: “from 1985 to 2002, there were 10,052 foreign takeovers of Canadian companies, 6,437 of them by US corporations” (CCPA, p. 1). The CCPA reported: “Of all the new direct foreign investment in Canada over this period, an extraordinary 96.6% was for takeovers of existing Canadian businesses”. Many of these takeovers were financed through borrowing within Canada. At the same time, there was “a marked increase in Canadian direct investment in the U.S., showing a pattern of disinvestment from Canada”. By 2002, “Canadians held about US$133 billion in the US,” three times more than they did in 1990 (CCPA, p. 1).

If we want to use the word “subsidy,” then Canada has abundantly subsidized the development of the US economy, and it is high time that process is brought to an end.

Sovereignty Diminished: Loss of Control over Domestic Policy

The investor settlement dispute system and its secret tribunals, were incorporated into NAFTA. If a corporation, typically an American one, is unhappy with Canadian policies on the environment and natural resources, they can sue for lost potential profits as a result of Canadians legislating for their own welfare. As a result, Canada has become the most sued developed country in the world because of NAFTA’s ISDS process. Canada loses “about half the time when foreign investors sue it under NAFTA’s Chapter 11, while the U.S. has never lost”.

Net Benefits of NAFTA for Canada?

The Canadian Centre for Policy Alternatives summed up the impacts of NAFTA as follows: “the impact of NAFTA on most of the people in all three countries has been devastating. The agreement has destroyed more jobs than it has created, depressed wages, worsened poverty and inequality, eroded social programs, undermined democracy, enfeebled governments, and greatly increased the rights and power of corporations, investors, and property holders” (p. 1).

Adaptation and Re-Development: Benefits of NAFTA?

Having been forced to adapt and adjust, Canadian industries evolved and new ones emerged. Now we face a situation where a huge percentage of Canadian jobs are dependent on free trade with the US and Mexico.

What is generally well established among economists now is that Canadian exports to the US and Mexico increased under NAFTA. Lower tariffs resulted in lower costs for consumers. The main beneficiary has been the automotive sector.

It is not even a question so much of how has NAFTA been “good for Canada,” but rather that NAFTA and its successor agreement, are what structure export-oriented economic production in Canada. Any major change to that structure, will result in a serious shock to the system…that is, until Canada once again adapts, adjusts, and re-develops.

Why Did the Break Have to be Like This?

I think this is the unspoken question that perplexes most Canadians, and even most Americans. What was the need for such aggression, and so much malice from Donald Trump towards Canada? Why did he speak as if Canada, the US’ strongest and closest ally for generations, was suddenly an enemy nation? Why the threats and countless insults? The US will not gain another friend like Canada has been, not anytime soon and not in the foreseeable future. If I were an American strategist, I would be absolutely horrified at what is being thrown away with such disregard, in such a cavalier fashion, without any extended public discussion of what comes after. It is all so high-handed, authoritarian, unilateral, and abrupt—and it didn’t need to be.

Assume, just for the sake of discussion, that everything Trump claims is 100% true—it’s closer to the opposite, but forget that for now. Even if he is 100% correct, then why could the de-linking not be negotiated and planned in a structured and phased manner, that would avoid plunging millions into unemployment on both sides of the border?

I never believed that the Republicans had ever, or will ever become “the party of the working class,” or that Trump was a “blue-collar billionaire”—after all, this is a man who has never bought his own groceries, which is why the word has caused him so much bemusement on repeated occasions. Still, one has to wonder at the open contempt he shows for the employment of workers in key US industries, when he plays as if he were the defender of the working class. Democratic leaders comment that they have lost the working class, but it does not seem that workers were gained by the other side either. It just seems that American workers are lost, period. Next time they look for a hero, they should look to themselves, within their own ranks.

It’s as if Trump has no plan, except for destruction, at high speed. Ultimately, I believe he should get what he wants, and Canada will benefit from the break.

An Overdue Break

Seven years ago in Zero Anthropology Magazine, during the first Trump “trade war” with Canada and Mexico (which resulted in next to nothing in terms of gain for the US, or losses for Canada and Mexico), I wrote the following:

Ironically, despite 94% support from Canadians, Canada lacks a system of free trade domestically, between provinces, and if it had one what would be added to the Canadian economy would dwarf the value of agreements like the TPP by a dozen times:

“The self-inflicted cost [of inter-provincial trade barriers] is staggering. Economists Trevor Tombe and Lukas Albrecht have estimated that full free trade within Canada would add between $50 billion and $130 billion to our GDP each year, or $7,500 per household. To put that number in perspective, $50 billion is twice what the federal government spends on defence. By comparison, a free-trade agreement with China has been projected by the Canadian Chamber of Commerce to increase Canada’s GDP by only $7.8 billion by 2030”.

It is now widely accepted—and major, concrete moves have already taken place in Canada—that a number of changes are immediately needed:

1. Diversification of foreign trade partners;

2. New bilateral and multilateral associations;

3. Reduction/elimination of inter-provincial trade barriers.

It is a breath of fresh air to finally hear these demands being accepted, and being endorsed by all the major political parties in Canada. It is long overdue.

But the break should not be restricted to trading arrangements alone.

De-Linking Should be Political, Diplomatic, and Military Too

Canada must respond as strongly as possible to the Trump-initiated trade war, and ensure that such a lesson is taught to the aggressor that Canada will never be held hostage again like this by any abuser south of the border. Besides banning Trump from entering Canada, the Government of Canada should take the following actions:

🔘 Do not accredit any new US ambassador appointed by Trump;

🔘 Reduce the number of US diplomats in Canada, and the number of Canadian ones in the US;

🔘 Impose personal financial sanctions on Donald Trump, his family, his businesses, and likewise for every member of his cabinet;

🔘 End NORAD completely. Trump complains about “protecting” Canada, so remove the excuse. NORAD always existed to protect the US, and Canada was used to protect the US—not the other way around;

🔘 Declare that Canada is a neutral country;

🔘 Start making overtures to either join BRICS and/or the EU;

🔘 Station more Canadian military forces in Alberta; and,

🔘 Place a large entry tax on all Americans entering Canada by road, to travel to Alaska.

And I offer these recommendations as only the start of a response.

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