The troubling truth about free trade

Posted on May 22, 2012 in Debates

Source: — Authors: – news/commentary/opinion
Published Monday, May. 21, 2012.    Jim Stanford

As soon as it won its coveted majority, the Harper government put the pedal to the metal on the trade front, with a stampede of new free-trade deals. The Department of Foreign Affairs and International Trade currently lists 18 different deals in play, ranging from puny (Panama and Jordan) to gargantuan (Europe, Japan and India).

Anyone who stands in the way of this juggernaut clearly must oppose trade in general. At least that’s how the Conservatives portray the issue, attempting to brand its New Democratic opponents as economically illiterate dinosaurs.

There’s a big difference, however, between signing free-trade pacts and actually doing something about trade. Canada’s trade performance deteriorated badly over the past decade. The quantity of goods and services shipped abroad is seven percentage points lower than when the Harper government took office, lower even than back in 2000. And what we do export increasingly consists of raw resources (especially oil). Our once-impressive trade surplus has melted into deficit. Despite accelerating petroleum sales, we’re running up international red ink at the rate of 3 per cent of GDP per year.

Free-trade deals already cover 70 per cent of Canada’s trade – yet the more pacts we’ve inked, the worse our performance has become. I’ve reviewed our five longest-standing trade pacts: with the United States, Mexico, Israel, Chile and Costa Rica. Canada’s exports to them grew more slowly than our exports to non-free-trade partners, while our imports surged much faster than with the rest of the world. If the policy goal (sensibly) is to boost exports and strengthen the trade balance, then signing free-trade deals is exactly the wrong thing to do.

Indeed, it could be argued that it’s the current government, not free-trade critics, that is “anti-trade.” For example, the Department of Foreign Affairs and International Trade employs hundreds of bureaucrats who travel the world negotiating trade deals. But the department plans to axe 53 commerce officers who actually work with Canadian businesses to boost exports. Meanwhile, CBC reports that four Canadian consulates and trade offices in the United States (by far our most important export market) will be closed.

Ottawa trumpets its latest free-trade pact (with Honduras) as evidence of a commitment to trade. Honduras is an impoverished quasi-dictatorship where journalists are routinely assassinated. Canada sells less than $50-million a year there (while importing four times as much). We export more to the United States in 88 minutes than to Honduras in a year – yet as we ink this blockbuster deal with Honduras, we close trade offices in the United States. What’s the net impact on trade? Clearly negative.

Ottawa’s endorsement of an overvalued currency (trading 25 per cent above purchasing power parity) also hurts Canada’s exports, forcing economic activity into lower-productivity non-tradable sectors of the economy. Even the plan to ram through new bitumen pipelines, seemingly all about exports, may undermine our overall trade performance. We won’t refine the stuff here, and we won’t make the mining machinery here, so our capacity to produce higher-end products (including for world markets) will further diminish.

Ultimately, the proof is in the pudding. Total exports of goods and services were equivalent to 31 per cent of Canada’s GDP last year – down from 38 per cent when the Harper government was elected (and 46 per cent in 2000). If the goal is truly boosting trade (as opposed to enshrining business-friendly economic rules or propping up authoritarian governments in Latin America), then this government is failing miserably.

Canada’s export failure cannot be blamed on foreign trade barriers. Instead, we must look in the mirror – at the structural inadequacy of our business sector. Canada has chronically failed to nurture and develop domestically based globally active firms that produce innovative, high-value products for world markets. Working to fix that problem (through proactive technology, innovation and sector-development strategies) would do more for our actual trade than all the free-trade talks in the world. If you truly believe in trade, don’t be distracted by the trade deals.

Jim Stanford is an economist with the Canadian Auto Workers union.

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