Posted on August 17, 2017
As we look at the potential failure of the NAFTA negotiations, I wonder if we have prepared ourselves adequately with an alternative strategy.
Over the last last three decades, the USA has persuaded us to fully integrate our economy with theirs. We have lost most of our secondary processing and manufacturing industries, and now specialize in resource and mineral extraction which are exported mainly to support the massive US economy. Now that we have integrated our economies in this manner, the US has decided to tear up the deal we made, and offer new “terms”. We have become far too dependent on them, and now look really stupid. As the negotiations proceed, we will realize our mistake, if we don’t already.
With the benefit of hindsight, we can see that we should not have lost our economic self-sufficiency. Doing so has left us vulnerable to world prices, to the whims of foreign countries, and to the results of American elections. Long time Kitchener residents know we used to make every kind of product here: all kinds of auto parts from frames to rubber tires, shoes, skates, rope, barrels, detergents, radios, televisions, you name a product, it was manufactured here. While I still believe in the benefits of free trade, it requires that both parties open their countries, and trust each other. With the US demands in the NAFTA renegotiation, that trust has now been lost. I feel we should continue to maintain and grow free trade relationships with those economies that treat us fairly. But nourishing those relationships will not fully utilize our productive and employment capacity, especially not in the near term.
I personally believe that we should re-establish the self-sufficiency that once existed in our country. Basically, this means importing less, and making more stuff ourselves. To accomplish this, we would need to re-introduce selective import tariffs on US goods, to restore a degree of self-sufficiency. This is not a new idea; it was standard practice 30 and more years ago, and ensured our domestic industry could compete at lower economies of scale for our smaller population. At that time, our plants were smaller than some of the massive plants in the USA, so we protected them through a tariff wall. Today, we don’t need as high a tariff wall as we did back then, because factory automation allows producing small lot sizes very economically. But we will need at least some protective tariffs in order to begin.
As an example, why should we import American-made cars? We have the assembly capability here; we can ramp up those facilities further by imposing a 15 to 25% duty on US imports of finished cars. We should also make a side deal with Mexico, who are buying more cars every year, and would be willing to stop buying from the USA and start buying from us. Between our two countries, Mexico could continue to serve the lower end of the market with small cars; while we focus on trucks, large sedans and SUVs. Such a deal can be balanced: Mexico has three times our population, and offers a growing market for new vehicles. Foreign governments that are reasonable, and interested in mutual benefit, do make good trading partners; because of proximity Mexico should be one of the first options we consider.
Canada has come to rely on oil and lumber exports, and the easy money on this trade has made us complacent. We should not give away our resources at fire sale prices, remembering instead their value, and that they will keep; resources have a long shelf life. We should always get a good price for them, no matter who the customer. For too long, we’ve been giving away the material wealth of the country for next to nothing. For example, B.C. sells most of its lumber in raw form, and employs fewer people per board-foot exported than any other state or province. In addition, most of our Alberta oil is piped away and refined in Louisiana. Unfortunately, due to NAFTA and our previous government’s policies, we have listened to business interests without planning or thinking enough about sustainability and employment. Ironically, many Westerners blame their current unemployment woes on Trudeau, and Notley, when the issue is that their economy has become vulnerable due to selling our resources as a commodity. The Western Canadian economy now needs serious re-tooling and re-orientation, in terms of adding pipeline to tidewater, and adding secondary processing for beef, lumber and energy. The profits won’t come as easy during the re-tooling and re-investment phase, but there should be lots of work for everyone to do.
I’m writing all this, in the hope that our leaders realize that we don’t need to take a disadvantageous deal in re-negotiating NAFTA. The opinion I offer is based on a smattering of knowledge and experience and may be incorrect in respect to one or another of the details. A serious re-tooling of our economy would require extensive research. But hopefully I’ve sketched a viable direction that our economy could take. In the coming NAFTA negotiations, thinking in this direction will provide a viable downside alternative strategy. If we don’t have a viable alternative strategy that allows us to push away from the negotiating table, we may find ourselves party to a deal that severely disadvantages us.
We also should re-negotiate the terms of NAFTA with a future exit as a probable contingency. For example, letting the extra-judicial dispute board go (Chapter 19), with a corresponding increase of our own internal sovereignty, will allow us, at a future date, to set up the tariff walls we need to re-establish manufacturing and secondary processing we so urgently need. That may be the right or wrong thing to do, depending on the nitty-gritty details of the negotiation. Regardless of the details, we must be always mindful of restoring the self-sufficiency of the Canadian economy as we proceed.