This week represents a critical threshold in the troubled North American Free Trade Agreement (NAFTA) talks between Canada, the United States and Mexico.
As the Montreal round of talks begins, it’s obvious that very little common ground exists between the parties and almost no progress has been made on substantive issues.
It’s time to face reality – NAFTA is as good as dead.
But the demise of the deal might just be the economic shock that Canada needs to put its house in order.
U.S. President Donald Trump is living up (down?) to his billing. During the 2016 presidential election, he promised to shake up the status quo and – clearly – he’s following through. From blowing up the Trans-Pacific Partnership on trade, to withdrawing from the Paris Agreement on climate change, to moving the U.S. embassy to Jerusalem, to radically overhauling the U.S. tax regime, to triggering an unprecedented shutdown of the U.S. government, a clear pattern is emerging. Everything that was sacred is a target for Trump’s wrath.
It’s time to stop being shocked by Trump’s behaviour and accept it for what it is: a concerted (if unco-ordinated) dismantling of the status quo.
The implications for Canada are chilling. Canada is an exporting nation and more than 75 per cent of our exported goods and services go to the United States. Canada is the largest foreign supplier of oil, natural gas and electricity to the U.S.
The numbers are impressive. Canada and the United States are each other’s biggest trading partners, trading more than $2 billion in goods and services daily. Canadians are one of the biggest purchasers of U.S. goods and services. U.S. exports to Canada exceed all U.S. exports to China, Japan, South Korea and Singapore combined.
Economists have calculated that the bilateral trade between the two nations is worth $1.4 trillion, making it the world’s largest and most comprehensive trading relationship. Needless to say, this cross-border relationship impacts millions of jobs in each country.
Regrettably, if Trump is true to form, he’ll take the opportunity presented by an increasingly bitter stalemate in trade negotiations to unilaterally withdraw the United States from NAFTA.
So it’s not if NAFTA will be blown up, it’s when?
And what should Canada do next?
NAFTA has rapidly accelerated integration of the North American economies. But it has also contributed to the balkanization of Canada. It has unravelled the fabric of our shared national purpose, damaging the quality of our political union.
The ease of north-south trade has lessened the economic imperative that otherwise would lead the federal government to override petty provincialism. Trade within Canada is a national joke – we have freer trade with the European Union and the U.S. than we have domestically. Interprovincial trade is frustrated by a host of arbitrary barriers (legal and illegal) between provinces.
It’s so bad that even municipalities restrict purchasing in favour of local suppliers – a policy that would fall on the first constitutional challenge. And yet there are no challenges. So Canada, from sea to sea to sea, is disintegrating in an ocean of petty rivalries.
Accounting and advisory giant BDO Dunwoody calls it a national disgrace.
Worse, the Canadian economy has been dumbed down by NAFTA. Canada is now principally a supplier of raw materials and/or base commodities. Our secondary manufacturing sector (largely in Ontario and Quebec) has been systematically decimated. Our role in the continental energy business has been reduced to being providers of base commodities (largely unprocessed bitumen and unrefined oil) that’s regularly shipped directly to the United States, where it’s sold at a major discount and then upgraded and refined.
However, the most troubling sector is technology. Technology is the future of all modern economies and yet Canadians are the poorest performers in the G7 when it comes to developing and commercializing advanced technology. Lacking a functioning commercialization ecosystem, Canadian technology is routinely sold at pennies on the dollar to be fully developed outside the country.
It would be ironic in the extreme if some day we looked back on Trump’s NAFTA betrayal and thanked him for inadvertently reinvigorating our economy and jolting us out of our national complacency.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.
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