COLUMN

Canada’s difficult coming of age

Dian Cohen November 17 1986
COLUMN

Canada’s difficult coming of age

Dian Cohen November 17 1986

Canada’s difficult coming of age

COLUMN

Dian Cohen

The economy was front and centre in the U.S. midterm elections. In more ordinary times, that would be good for Canada. In the good old days, whatever the Americans did to fix their own economic problems was generally good for us. And when the Americans thought that they had to do something that would hurt some other country—as in 1963, when they put a tax on U.S. capital borrowed by people in foreign countries—they agreed to exempt Canada from the bad effects. Canada was like a little brother.

That relationship was severed in 1971, when the United States put a surtax on all American imports without exempting Canada. And, although we have slowly come to understand since then that we have become competition for the United States, we have little understanding of how to deal with the phenomenon. In the wake of the elections, that difficulty may become all the greater, increasing the need for us to develop a strategy that aims at preserving our standard of living and helps us to become a leading-edge economy.

Although it has been repeated by many commentators that local, not national, issues were dominant in last week’s elections, the focus remained on economics. The biggest vote swings happened in states where the most troubling problems were money problems. The Republicans lost ground in the farm states, where rural people are suffering—like their Canadian counterparts—from job losses, bankruptcy, low export prices and disappearing markets. President Ronald Reagan’s veto of a textile bill aimed at restricting imports hurt the Republicans in the textile-producing states. Pennsylvania, suffering from depressed steel markets, threw out a Republican. Neither were the Democrats exempt. Texas, on its knees in the wake of $15-abarrel oil prices, tossed out Democratic Gov. Mark White.

For whatever reason —and we should never look a gift horse in the mouth—Reagan is on the right track in backing trade liberalization. But the clear message to the President was that Americans want their elected representatives to pay less attention to global issues and much more to downhome ones. The Democrats, with their new Senate majority, have picked up on that mood. Robert Byrd, Democratic senator from West Virginia, will

most likely become Senate majority leader and will write the Senate’s agenda for the next two years. In his first interview after the election, he said that “putting a new trade bill on the President’s desk” was a top priority. And in Byrd’s opinion of trade issues and policies over the past six years, “Americans have been mugged.” His prescription: “A more balanced trade policy”—and a lot more conciliation from the President.

Texas Democrat Lloyd Bentsen will most likely head the Senate finance committee. That is the committee that voted to approve the so-called “fasttrack” method of free trade negotiations with Canada. That method requires that the finance committee approves or rejects a free trade deal: they cannot pick it apart. The 20-member committee’s decision to go ahead with the method was really the result of a default vote: a motion to reject the fast track received

That arrogance and naivete which might go with bigness are blinding mang Americans to good economic policy

10 votes for and 10 votes against, and was automatically approved. Bentsen did not vote for the fast track. It is likely that by the end of the year the number of Republicans on that committee will fall to nine. As a result, approval of a final free trade deal is less likely than it was. The new Senate wants a lot more control of overall trade policy. That is the kind of thing that Reagan will have to give over to the Senate to get some of what he wants.

The Democratic domination of both the House of Representatives and the Senate means that the omnibus trade bill that the House has already approved will now be passed. That bill includes a 22-per-cent surtax on all American imports. It is still unclear what will be in the trade bill that Senator Byrd wants to put on the President’s desk, but we can be sure that its effect will appear to protect jobs at home by restricting imports. And there is already talk of “mirror” legislation that will likely be enacted to reflect what are perceived as the unfair trade practices of U.S. trading partners. And Byrd has already talked

about plenty of “laws on the books” that need only to be enforced.

Unhappily for all of us, the naïveté and arrogance that sometimes go with bigness are blinding many Americans to good economic policy. That better solutions to many down-home issues may be found through globalization was not widely articulated during this campaign. As a result, Canada’s economic well-being is greatly at risk. All of that spells out the need for a thoughtful Canadian strategy.

America buys most of our exports. As a result, our living standards are most at risk if the ominous tone of the new American agenda setters is translated into action. Some Americans understand that isolationist and protectionist American policies will hurt them too: several million American jobs are directly dependent on trade with Canada, and several million more are dependent on trade with the rest of the world. It is in our own interests to impress that on the Americans. We are still not united in our understanding that trade with the United States is what now provides us with our living standards. Perhaps we need to stop feeling so put-upon by the Americans.

There is one bit of bad news for them that will be easier for us to swallow. The Democratic victory may well mean that the Americans will never see the 28-per-cent top federal personal tax rate that is supposed to come into effect by 1988. In fact, the Democrats are much more likely to raise taxes—which in a sense is good for Canadians. We have already been told, rightly, that we cannot aspire to taxes as low as the Americans are aiming for—we have too many more social programs to support. The gap, then, between what we can have and what the Americans may end up with has a better chance now of narrowing.

That is good, because we will not have to worry quite as much that all of our best people will leave the country. If we start thinking good thoughts like that, maybe we will be better able to concentrate on developing a strategy that hinges on co-operation, not confrontation. We cannot win in a confrontation. And it is now up to us to convince the Americans that although they would win in a confrontation it is not in their better interests.

Dian Cohen is a Montreal-based economics writer.