Chumming across the border

Marci Macdonald October 8 1984

Chumming across the border

Marci Macdonald October 8 1984

Why the Americans need Canada


Dian Cohen

Prime Minister Brian Mulroney has declared repeatedly, before, during and after his election campaign, that the United States is our “greatest friend and ally. Period.” On Sept. 25, eight days after his swearing-in ceremony, our new Prime Minister was in Washington telling that message to President Ronald Reagan. Said Mulroney of his close regard for the United States: “This implies no subservience. It invites merely a degree of maturity and understanding that our trade and our technological advances hinge upon an excellent relationship, which my government and I will always work toward improving.” The Prime Minister is right. His problem will be to convince the Americans of that. In the past three years the Reagan administration has allowed more restrictive trade measures than any administration since the 1930s: those include export embargoes on grain, oil and gas technologies, import quotas on cars, specialty steel and textiles, and tariffs on motorcycles.

Basking in the warm feelings of exemption from the United States’ most recent quotas on steel imports, Canadians may miss the fact that they are going to have to work very hard to keep the trade doors open without giving away the store. There are two enormous barriers to good relations with the United States, one over which Canada has no control, the other over which it has some control.

What Canada has no control over is the fact that the United States has a trade deficit of $83.7 billion (U.S.). (By contrast, Canada has a trade surplus of $14 billion [Cdn.].) That means Americans are buying $83.7 billion (U.S.) more in goods from the rest of the world than they are selling to it. The trade deficit comes, in part, from the fact that the U.S. dollar is so expensive that other countries simply cannot afford to buy as many American goods.

Unhappily, the Reagan administration does not accept that reasoning as the cause of the U.S. trade deficit. Reagan’s advisers believe the United States has a deficit because its trade restrictions are less severe than those of other countries. That has been the American position for years. Just as the Japanese, after the United States threatened them with unilateral cutbacks in 1981, “voluntarily” sat down and negotiated a quota system on cars sold in the United States, so steel exporters, mainly from Brazil,

South Korea, Mexico, Spain and Japan, will sit down and “voluntarily” restrict their own exports to the United States.

Since the Reagan administration believes that U.S. exports are being restricted in the rest of the world, it feels justified in passing retaliatory protectionist legislation. On Sept. 20 the U.S. Senate approved a bill extending presidential authority to retaliate against restrictive practices in international trade. The vote was unanimous. The House of Representatives has passed similar legislation.

Because Canada is part of the “rest of the world,” that kind of legislation is directed against us as well as everyone else, unless we are specifically exempted by the Americans. Under those circumstances it is difficult not to be subservient. Which brings us to the barrier over which Canada has some control. Americans are unbelievably blind to their country’s trade relationship with Cana-

‘The United States is incredibly blind to the reality that Canada is its most valuable trading partner’

da. The United States does twice as much trade with Canada as it does with Japan. Still, president after president, including Ronald Reagan, has said that Japan is the United States’ biggest customer. If Americans do not recognize how important we are to them, how can we expect them not to stomp on us?

According to Roy Cottier, senior vicepresident of Northern Telecom Ltd. in Toronto, almost two million Americans are employed by industries that rely heavily on U.S. exports to Canada, and a further half-million Americans work in service industries linked to Canada. Cottier suggests that we begin a massive communications program, “working through the media, unions, business and the universities to acquaint Americans, and particularly congressional and state legislators, with the scale of economic interdependence of the two countries. The message: Canada means jobs in the United States for Americans.”

That is certainly not a bad idea, and it may very well have been in the Prime Minister’s mind when he told a Time magazine reporter the morning after his election, “If I were the president, I

would wake up every morning and say ‘Thank God for Canada. Now, what can I do for Canada?’ ”

The Senate bill that authorizes the president to “suspend, withdraw, or modify trade agreement concessions or impose duties or other import restrictions or fees on the products or services of a foreign country” has another important clause. It authorizes the negotiation of trade agreements with Israel and Canada to reduce or eliminate tariffs and other trade barriers.

It was on the basis of that bill that U.S. Trade Representative William Brock invited Canadians into discussions on a free trade agreement Sept. 21. Such an agreement could solve a lot of problems. Canada is one of the few industrialized countries in the world that does not have a secure trading bloc of at least 100 million people. Free trade would undoubtedly lift the threat to Canada presented by the 800-odd traderelated bills that will come before this Congress and most likely the next one after this November’s U.S. elections. It presumably will allow Canadian ships, now excluded under the 1920 U.S. Jones Act (which restricts the transportation of goods on U.S. waterways to U.S.-built and registered vessels), to trade between American ports. It may exempt, and then again it may not, Canadian industries from legislation in the 46 states that have “buy American” purchasing preference policies.

Still, free trade leaves some unanswered questions, the biggest of which is the fate of international trade in general. What happens to the Third World debtor countries that have managed to stay afloat through austerity at home through the sale of an abundance of cheap goods abroad? If the United States restricts the import of those countries’ goods, the Third World debt crisis would return with a vengeance. If that were to happen, that worsened debt would become a problem for both the United States and Canada. Another question is what, exactly, free trade would cost Canada. Almost everything we have or can make can be bought somewhere else. Almost everything, except our water.

Mulroney is on the right track in saying our trade and technological advances hinge on a good relationship with the States. The trick will be for him to pull off such good-neighborliness.

Dian Cohen is a Montreal-based economics writer.