Seamanship Quotation

“In political activity, then, men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination.”
— from Michael Oakeshott's
Political Education” (1951)

Monday, August 15, 2011

Trade diversification: a Canadian way of looking away

When economic and political conditions in the US become uncertain, it looks respectable, even far-seeing for Canadian governments to dust off Pierre Trudeau’s 1970’s “Third Way.”
Last week, Stephen Harper visited Brazil and Honduras and talked up trade diversification globally and stay-the-course fundamentals at home. This weekend, the Premier of Ontario Dalton McGuinty promised that he’ll double the number of premier-led international trade missions if he’s re-elected.  
The Harper government is in active negotiations with the EU and India and is reported to be gearing up to pursue some fifty bilateral trade deals globally. The only doubts that have been raised about this priority have been about its sticking power. Looking for new friends and influence is uncritically accepted. The Globe and Mail portrayed this multi-directional approach in imperative terms.    
“The Prime Minister, eager to diversify Canada’s trade away from the ailing U.S. economy, is on a four-country Latin American tour to open doors for Canadian businesses.”
How can you quarrel with that? Are two political animals as different as Dalton McGuinty and Stephen Harper chasing a small idea? Yes.
As a platitude, it’s fine. Keeping public servants busy “thickening” relations around the world and the rest of us reading about expanding world trade beats protectionist alternatives lurking below the surface. 
Risk mitigation activities often make sense. There’s nothing wrong with Russian capitalists and Saudi Princes swelling Swiss bank accounts. But let’s not dignify the “Third Way” as problem-solving.
Trade missions to new markets do not solve basic economic problems.  Furthermore, addressing Canada’s fundamental competitive problems—lagging productivity, innovation and entrepreneurship—without regard to the fate of the United States is futile economically and rather cowardly.
The impetus for this “let’s-grow-somewhere-else” commercial strategy has proven, time and again, to be false. The United States is ailing, but it isn’t waning as a market or as an advanced economy.
It is experiencing a painfully slow recovery and is bitterly torn about how to resume sustained growth. Nevertheless, its productivity as a manufacturer and as a generator of high income jobs leads most of its competitors. Indeed, America’s productivity per worker is consistently 20% to 25% greater than Canada’s.
The US government has no grand government strategy to escape the North American market. Nevertheless, it’s beating Canada on the ground as a trade diversifier. Last year, according to The Economist’s Pocket World in Figures, 5.6% of US exports went to China. Despite Canada’s fabulous resource advantages and longstanding determination to broaden its trade relations, only 2.3% of Canadian and only .04% of Ontario exports went to China.
Last year, 77.7% of Canada’s and 78.8% of Ontario’s export of goods went to the US. Only a 1 or 2% decrease in the value of that market would wipe out a doubling of Canadian sales in South America. A 50% increase in sales to Western Europe (a heroic assumption) wouldn’t offset that shortfall either.
Canada and the United States both champion free trade and can compete internationally. Nevertheless, their high value sectors are already significantly integrated and their prospects internationally are significantly bound up in how well they perform as one open economy.
Trade diversification—that is, trading a little less next door and relatively a little more elsewhere—may be a long-term outcome of globalization. But, it will most likely succeed for Canada as a North American partnership.  
Globalization should bring Canada and the United States closer together. Scurrying around the world is no substitute for political leadership to break down barriers in North America caused by nationalist politics in North America.  

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