To call the current trade relationship between Canada and the U.S. “troubled” is to resort to euphemism — we are watching a breakdown of historic proportions. An overwhelmingly positive partnership that spans nearly 200 years is being threatened by a U.S. President based on figures he admits he made up. The fact that NAFTA has created jobs and grown the economies of Canada, Mexico, and the U.S. is beside the point, it would appear.
Our first priority should, of course, be a successful conclusion to the NAFTA negotiations. But even if we dodge the most immediate bullet headed in our direction, there is no guarantee that others won’t follow. The U.S. administration imposed illegal tariffs on Canadian aluminum and steel on the pretext that our exports posed a threat to America’s national security, although the President explained that these duties would go away if he was satisfied with the NAFTA negotiations. Section 232 of the Trade Expansion Act was simply a convenient tool to impose tariffs without seeking permission from Congress.
His behaviour raises an obvious question: if the President is willing to ignore the rule of law today, why would he reject the temptation to do so in the future?
The evidence is clear that Canada has relied far too much on a single customer. We need to understand, however, that we’re not simply dealing with an aberration that will pass in one or two American election cycles. Capricious U.S. actions have increased dramatically in the past year, but Buy America restrictions, illegal country-of-origin labeling legislation, attacks on Canadian softwood lumber and the politically-motivated refusal to grant a permit for Keystone XL didn’t originate with the current administration.
We can’t direct what our southern neighbour does, but that doesn’t mean that our fate is entirely in someone else’s hands. We can do a great deal to enhance our competitiveness and to reverse the flood of investment from Canada, if we can admit the problem and summon the determination to fix it.
First, we must step up efforts to diversify our trade. That includes helping businesses — particularly SMEs — to take advantage of our existing trade agreements, like those with Europe, Korea, and the countries of the soon-to-be ratified Comprehensive and Progressive Trans-Pacific Partnership. We also need to aggressively pursue opportunities with other countries or trading blocs like Mercosur and the Pacific Alliance. But these agreements only open the door. We need to make sure our businesses actually walk through it by supporting efforts to develop new markets and by building the critical infrastructure needed to get our products to international customers.
Second, we need to stop undermining our business competitiveness and our ability to attract investment. As a first step, we can get serious about removing internal barriers. Our market of thirty-seven million is small by any international standard. When we divide it into thirteen principalities with differing rules, it becomes tiny. The result is higher costs for business, and less choice with higher prices for consumers. Everyone loses, except for special interests and the politicians who support them.
Third, given the dramatic tax and regulatory reforms to our south, we must fix our broken regulatory system and reduce the burden of fees, regulations, charges and other costs imposed on Canadian companies by all three levels of government. While we can’t match the recent U.S. tax cuts, we can at least provide faster write-offs for capital investments. And, four decades after the last comprehensive review of our barnacle-encrusted tax system, the government should launch a comprehensive review on how to make it more fair and efficient.
Fourth, despite the current problems and the need to diversify our trade, the ties between our citizens remain strong and our relationship with our giant neighbour will remain by far our most important. We can no longer take it for granted. Both business and government need to step up their outreach efforts in the U.S. and make them permanent.
When Parliament reconvenes in September, the next election campaign will be less than twelve months away, leaving limited time to set a new course.
Each of the parties needs to acknowledge how the world has changed and how priorities that made sense even three months ago must give way to implementing a strategy to add much-needed muscle to our competitiveness. The government should present a Speech from the Throne with a new, more focused agenda, followed by a mini-budget that sets out specific measures to help Canadian businesses succeed. That means less time for the nice-to-haves and much more time for the need-to-haves.
The challenge to our prosperity is clear, but we have the capacity to protect the livelihoods of millions of Canadian families. What we need is the vision and the political will to make it happen.
President and CEO
Canadian Chamber of Commerce