Winning Votes, Losing the Economy: Canada Has No Where Else To Go

Scoring political points against the U.S. might look good on the campaign trail, but the long-term economic cost is terrifying.

As Canadians head for their well-deserved summer break, I am struck by the growing parallels with our colonial forebears. The U.K., a country I called home for more than a decade, is suffering many of the same economic and political issues as my native land. Weak productivity, a bloated civil service, high debt, anemic capital investment, a self-destructive industrial policy, high taxes, housing (un)affordability, curbs on freedom of speech and internet censorship. Lately, however, what has my attention are the CUSMA negotiations and their similarities to the U.K.’s break away from the European Union (E.U.), or Brexit, which I lived through during my time there.

Renegotiating the North American trade agreement among the U.S., Mexico, and Canada was always going to be difficult, not only because of President Trump’s America First policy, but also because it enjoys quiet, bipartisan support. Many U.S. Democrats also favour greater protectionism, particularly updates to rule-of-origin clauses to anchor manufacturing jobs in North America rather than in Asia. Their relative silence during these negotiations should give Canadians pause.

Another reason is this government’s political calculation during the most recent election. In what proved to be an effective strategy, they amplified and weaponized President Trump’s crass and unwelcome comments regarding Canada. In my view, this was done to distract from what is an objectively horrific economic record. A political strategy as old as time – shifting the focus to outsiders – had the added benefit of defanging the right-wing opposition, as any attempt to focus on decay at home was seen as not taking a “threat of invasion” seriously.

So why does this remind me of Brexit? Enter David Cameron.

Under pressure from within his party and fearful of being outflanked by Brexit talisman Nigel Farage, Cameron turned up the Euroskeptic rhetoric and pledged to hold a referendum. In the early 2010s, Britain had valid grievances with Brussels — immigration chief among them. Playing tough on Europe polled well and saved his political career. Until it didn’t.

To Cameron’s credit, prior to the June 2016 vote, he negotiated a series of special membership terms with Brussels, which included an emergency brake on migrant benefits. So, after fomenting anti-E.U. sentiment, and then approving a referendum, he went on to campaign against Brexit. He knew there was no meaningful substitute for the E.U. as a trading partner. Geographic proximity, deeply integrated supply chains, and zero-tariff access make it irreplaceable.

The problem is that he opened a can of worms he could not control. Leave won. Cameron resigned. In sum, a spectacular own goal.

The New Trade Partner Myth

Politicians who campaigned to leave the E.U. promised a new world — bigger and better trade deals, economic self-reliance and political emancipation from a corrupting neighbour. Sound familiar? Unsurprisingly, this has not materialized in any meaningful way. The irony, of course, is that the E.U. still dominates U.K. trade, but the U.K. is no longer at the table shaping the rules. Canadians should be wary of a similar pitch: diversify away from the U.S. to a New World Order, this one centred in Europe. A continent hampered by overregulation, high debt levels, poor demographics and a cultish climate policy that is killing its industrial base. Europe is decidedly not a growth story. But I digress.

Mr. Carney faces the same trap. Having made anti-Trump sentiment the centrepiece of his electoral victory, he now finds himself negotiating a trade agreement with the very man his campaign was built on opposing. A President notorious for his thin skin, heading an economy that does not need Canada to survive. The risk for Canadians is that the Americans have been listening, and then give Mr. Carney his supposed wish to leave the North American Union.

Meanwhile, the Canadian economy has never been more vulnerable. Weakened by a decade of poor industrial policy, it has precious little room to absorb the consequences of getting this wrong. Canada sends roughly 75% of its exports to the U.S. and already has favourable terms with the world’s biggest economy.

Should Canada diversify its trade? Of course! But as with Brexit fantasies, there is no equivalent partner, no comparable market, no realistic alternative. The geography is fixed, the supply chains are deep, and the leverage is limited.

Better The Devil You Know

None of this is an argument for capitulation, nor an endorsement of President Trump’s tactics. It is an argument for realism. If Brexit has taught us anything, it is that politicians can and do get too clever for their own good. It has not worked out for the U.K., which has suffered years of self-inflicted uncertainty, capital flight, and no new trade partners that were always more myth than reality. Stagnation and political acrimony are what remain.

Canada still has a choice. A renegotiated CUSMA that it doesn’t love is still better than no deal at all. Canada also has everything it needs to succeed in this century — energy, geography, and security — should the government allow it. Those are strong cards, and they should be played at the negotiating table rather than sacrificed to score points for a well-heeled generation that won’t be around much longer and against a president who will be gone in three short years.

Britain learned that lesson the hard way. Canada does not have to.

~rd