COLUMN

Opposing free trade is like opposing gravity

DIANE FRANCIS April 27 1992
COLUMN

Opposing free trade is like opposing gravity

DIANE FRANCIS April 27 1992

Opposing free trade is like opposing gravity

COLUMN

DIANE FRANCIS

A fascinating new study by Toronto broker Wood Gundy Inc. debunks the myth that Canada is rapidly deindustrializing as a result of free trade with the United States. “Apart from brief cyclical downswings, manufacturing has maintained a 20-per-cent share of real gross domestic product in Canada since 1975, an almost identical proportion to the sector’s size in the U.S. economy,” wrote Wood Gundy’s chief economist, Jeffrey Rubin, in an April study entitled “Is Canada De-industrializing?” The current manufacturing-job losses are due mostly to the recession, poor sales and rockbottom commodity prices worldwide, according to other sources, including the Canadian Manufacturers’ Association.

Wood Gundy’s Rubin points out that the long-term trend is to produce more manufactured products with fewer, more highly paid and skilled workers. (The trend is under way in all of the other G-7 countries: the United States, Germany, Japan, Italy, France and Britain.) About 15 per cent of Canadians by 1990 worked in the manufacturing sector, compared with 23.5 per cent in 1966.

Interestingly, the U.S. decline has been slightly larger during the same period, decreasing to 15.8 per cent from 25.6 per cent. “Even Germany and Japan, renowned for the strength of their manufacturing industries, have undergone similar although not as pronounced trends,” wrote Rubin. “In Germany, manufacturing employment has actually shrunk by one million since peaking at 36 per cent of the workforce in 1970. In Japan, the level of manufacturing jobs has risen, but its relative share to total employment (22 per cent) is lower today than in the mid-1970s.” Rubin wrote that although the G-7 as a whole has lost global market share to newly industrialized countries, Canada has maintained market share relative to G-7 trading partners. Canada’s share of the G-7 total manufactured exports was 5.3 per cent in 1990, compared with five per cent in 1975. But the

A world government is frightening, but it is also the only way mankind can solve its two biggest problems: poverty and pollution

bottom line is, whether it involves shoes or calculators or cars, manufacturing continues to shift to poor countries from rich ones. It is a trend that began in earnest after the Second World War, and represents the greatest redistribution of wealth in history. Some may argue that the rich are merely getting richer. There is no doubt that many of the same participants are piling up even more wealth and redistribution is far from balanced. However, more workers and small suppliers in low-labor-cost countries have jobs and business based on exports than ever before, and living standards nudge upwards.

The process sprang out of the war effort when some Allied nations dropped tariff barriers towards one another and underwent the first rationalization, or restructuring, of their manufacturing to make weapons cheaply and efficiently. Wings were built in one country, wheels in another, airplane engines in a third and components were assembled in another country. That circumvented the colonial, or mercantilist, tariff barrier system of the past, which denied consumers the best products at the lowest prices. Before the war ended, the arrangement, codified by British economist John Maynard Keynes and American assistant

secretary to the treasury Harry Dexter White, was initialled by Allied leaders in 1944 in Bretton Woods, N.H., during a conference chaired by Louis Rasminsky, later the governor of the Bank of Canada.

The 44 Allies agreed to expand their openborder policy and began the process that eventually led to GATT, or the General Agreement on Tariffs and Trade, which comprises the world’s economic constitution. GATT has brought about a dramatic decline in tariffs, and now 103 countries belong to the global economy. The liberalization of trade benefited Canada, in particular, with its resource base and tiny population—too small to sustain manufacturing giants.

As the world’s economies integrate, a new political world order develops. The G-7 represents a step towards a global government. The seven economies comprise nearly two-thirds of the world’s gross national product and function like the world’s cabinet, making decisions about currencies, monetary policies and foreign aid that affect everyone. The G-7 even supersedes the United Nations. An example of the shift of power is the fact that President George Bush sought pledges of support from his G-7 partners for the Gulf War initiative, then had it rubber-stamped by the UN to garner support from other allies.

The thought of a world government is frightening on one level, but represents the only way mankind can solve its two biggest problems: poverty and pollution. The rich must open up markets to help the poor. The rich must also help poor countries clean up environmental messes and must try to help them grow richer without poisoning the environment.

The progressive liberalization of trade worldwide is immutable and irreversible because of enhanced expectations, thanks to the mass media. Illiterates around the world watch television and see the lavish lifestyle of those in the rich countries and want it. As well, mass migration is under way, with millions of economic refugees illegally crossing borders to gain a better lifestyle. That phenomenon was described in a slogan by thousands of East Germans at the Berlin Wall two years ago, before it was tom down. They said: “Bring the deutsche mark to East Germany or the East Germans will go to the deutsche mark.” Paradoxically, to keep East Germans at home, the government had to order the wall tom down and immediately undertake steps leading to unification.

Similarly, the United States must open its market to Mexico to provide a way for Mexicans to remain at home and make a living, rather than sneak across the border. The choice for rich countries is simple: accept the products or the people from poor countries. That is why opposing free trade is like opposing gravity. All Canadians and our policymakers can do is open our markets to others, seek markets for our goods and services and nurture Canadian wealth creation through incentives, competitive taxes and good education systems. Those who rant and rave routinely against free trade are distinctly unhelpful because they are latter-day King Canutes trying in vain to order an end to the tides.