Relinquish aggressive trade tactics, Prime Minister: Embrace freedom of trade for Canadians with the U.S. and international markets.
Kicked-Up Conversation on Canada's Trade Relationship with the United States
Flip the script, and you'll find that the musings of today's Canadian leaders echo the thoughts of their predecessors. For over a century and a half, they've pondered the question of economic independence from the United States. Macdonald, Diefenbaker, and Trudeau all tried their hand at limiting trade dependence, with little success. Macdonald's policies, like the one proposed by Trudeau's foreign minister, couldn't bring prosperity, and Diefenbaker left us more reliant on American trade than ever.
The Trump era has brought new discussions about rerouting exports and imports. His talk of the "51st state" and unpredictable tariffs has many Canadians considering their options. We may be highly reliant on trade with the United States, with 77% of our exports heading their way, but that doesn't necessarily mean it's a burden to be dodged.
It's simple economics: we're close to a vast, booming market on the other side of the border. From Northern Quebec's lumber to southern Ontario's engines, the American export market has made these jobs more lucrative.Switching our focus to European houses or Swedish cars is an expensive compromise, considering the difference in wood use and shipping costs. Plus, the automobile engines for Detroit's factories are made not just in Canada but right next door. Engineers from both countries frequently collaborate to solve problems, upgrade machinery, and increase productivity.
So what can our new PM do? Three things:
- Prioritize trade normalization with the United States. Politicians may be tempted to use heated rhetoric or retaliate with tariffs, but it's key to remember that tariffs harm both countries, as Canadian companies are highly dependent on imported parts and consumers rely on imported products.
- Expand transport links for goods and people across the country. A single bridge failure once made it impossible to send goods by truck from Western to Eastern Canada! Resources in the Prairies are often trapped with nowhere to go but south, and interprovincial trade is impeded by outdated infrastructure.
- Address self-inflicted economic wounds. Canada's tax treatment of entrepreneurs is punitive compared to America's. The housing crisis is a supply problem, and municipalities must be mandated to approve higher-density development. Building codes should be harmonized, and new cities platted out if necessary. To thrive, trained workers in essential fields like healthcare, teaching, and construction should be able to move freely from one province to another.
There's a temptation to blame economic stagnation over the past decade on current tariff disputes, but Canada's poor performance is primarily due to bad domestic policy. A cycle of tariff escalation and poorly conceived attempts to rebalance trade would only make Canadians poorer. Our new PM needs to forget about 'Elbows Up' and focus on the 'Elbow Grease' of diplomats and policymakers to navigate this trade tension and propel Canada back to growth.
Kevin Bryan, an innovation economist with a background in economics, will guide us through this challenging terrain. He serves as an innovation economist at the University of Toronto's Rotman School of Management, as Chief Economist at Creative Destruction Lab Toronto, and co-founded the NBER Innovation PhD Boot Camp. He's also the co-founder of an AI edtech startup called All Day TA.
Opinion articles are based on the author's interpretations and judgments of facts, data, and events.
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Historically, Canada's economic dependence on the United States has been shaped by trade agreements and geographical proximity, with notable agreements such as the Canada-United States Free Trade Agreement (CUSFTA) in 1988 and its successor, the North American Free Trade Agreement (NAFTA) in 1994 (now replaced by the Canada-United States-Mexico Agreement, CUSMA). While this dependence can make Canada vulnerable to economic fluctuations and policy decisions in the U.S., it has also helped maintain a strong economy by providing access to a vast market for Canadian goods and services.
To reduce its reliance on U.S. trade, Canada could consider diversifying export markets, promoting domestic production and innovation, investing in supportive infrastructure, and strengthening economic partnerships to create a more resilient and prosperous economy.
- The current Prime Minister must prioritize diplomacy with the United States, aiming for normalization of trade rather than confrontation or retaliation against unpredictable tariffs.
- To mitigate the risks of over-reliance on trade with the United States, the Prime Minister should explore options for expanding transport links within Canada, improving goods and people movement across the country.
- In order to compete with the American market, the Prime Minister should address self-inflicted economic wounds, such as punitive taxes on entrepreneurs, restrictive housing policies, outdated building codes, and inefficient inter-provincial trade.
- A more resilient and prosperous Canadian economy could be achieved through diversification of export markets, promoting domestic production and innovation, investing in infrastructure, and strengthening economic partnerships.
- The dependence of Canada's economy on the United States has historical roots, stemming from trade agreements and geographical proximity, with milestones like the Canada-United States Free Trade Agreement (CUSFTA) in 1988 and the North American Free Trade Agreement (NAFTA) in 1994, now replaced by the Canada-United States-Mexico Agreement (CUSMA).
- In today's fast-paced world, innovation is a crucial component of economic growth, and a university such as the University of Toronto's Rotman School of Management, with a focus on innovation economics, plays a significant role in shaping Canada's future.
- The recent tariff disputes should not be blamed for all of Canada's economic stagnation over the past decade. Instead, poor domestic policies have been the primary culprit, creating cycles of tariff escalation and misguided attempts to rebalance trade.
- There is a need for a shift in focus from heated rhetoric to constructive dialogue and hard work (Elbow Grease) among diplomats, policymakers, and business leaders in order to navigate tension in trade relations and propel Canada back to growth.
- Kevin Bryan, an innovation economist who serves as an innovation economist at the University of Toronto's Rotman School of Management, plays a key role in navigating this complex economic landscape. He is also the Chief Economist at Creative Destruction Lab Toronto, and the co-founder of the NBER Innovation PhD Boot Camp, as well as an AI edtech startup called All Day TA.
- Opinion articles present perspectives based on the author's interpretations, judgments, and analyses of facts, data, and events, and can serve as valuable sources of insight and thought-provoking conversations on today's pressing issues, such as Canada's trade relationship with the United States.
