The Alternative to Free-Trade is Severe Recession

(Anthony Westell — Globe & Mail)

If the Democrats win the coming U.S. election and set about dismantling the North American free-trade agreement (NAFTA), as they have proposed, will that be good or bad for Canada?
Globe columnist Lawrence Martin ( North America’s Era Of Limitless Integration Draws To A Welcome Close) believes it will be good, slowing – perhaps reversing – continental integration, and so reinforcing our national identity. But it’s more likely it would do the opposite by forcing Canada into a closer economic and political relationship.

Like it or not, the Canadian economy is now part of a continental economy, and the vast proportion of our exports go south. An abrupt closing of the U.S. market would be disastrous. In fact, if a Democratic administration raised tariff barriers or took other steps to restrict imports, Ottawa would have no course but to rush to Washington and beg for an exception. It’s happened before and it would happen again, because the alternative would be a severe recession in Canada.

Mr. Martin is old enough to remember the Third Option in 1972, when the Trudeau government set out deliberately to reduce Canada’s dependence on the U.S. market. Canadian nationalists loved it, but it simply didn’t work, in fact, it couldn’t work, as both Pierre Trudeau and his Secretary of State for External Affairs, Mitchell Sharp, who actually introduced the policy, admitted in their memoirs. Canadian business was committed to the U.S. market and unwilling to change direction.

Mr. Trudeau, nothing if not flexible, then reversed direction and offered the U.S. free trade in some industrial areas – that is, to increase the integration of the two economies. Why? Because it was clear the Canadian economy was falling behind in a globalizing economy and needed the stimulus of competition. Several major studies recommended free trade with the U.S. to rationalize continental industry. It was Mr. Trudeau’s successor, prime minister Brian Mulroney, who carried through on free trade, urging the two economies closer and closer.

To attempt to untie the knots now would be disastrous. But that doesn’t mean a new administration in Washington won’t try: Protectionism is in the wind. The question for Canada is what concessions it may have to make to retain access to the U.S. market. How about a common market, with common tariffs against the outside world? Some think it is the logical next step to follow free trade anyway. Read the rest.