Canada’s Trade Divide: The East vs. The West
Free Trade does not benefit everyone. Free Trade was, and still is a mistake. Free Trade did not benefit any global superpower. It only destroyed North America’s global industrial dominance.
It is evident that free trade has significantly contributed to the decline of North America's global industrial dominance, leading to the rise of other global industrial powers such as China. The decades of the late 80s, the 90s, and the early 2000s saw the adoption of free trade policies that led to the offshoring of manufacturing jobs, primarily to countries with lower labor costs. This phenomenon, known as the "China Shock," saw a massive influx of cheaper Chinese goods into the North American market, leading to the closure of many domestic factories and the loss of millions of manufacturing jobs (Lind, 2012). In his work "The New Class War: Saving Democracy from the Managerial Elite," former professor Michael Lind of the Lyndon B. Johnson School of Public Affairs provides a compelling argument about how free trade contributed to the decline of North America's global industrial dominance. Lind explains that the pursuit of free trade policies led to significant offshoring of manufacturing jobs, particularly to countries with lower labor costs, like China (Lind, 2020). This phenomenon, often referred to as the "China Shock," had profound impacts on North American manufacturing sectors, leading to widespread job losses and economic dislocation. The shock was characterized by a surge in imports from China, which decimated many local industries unable to compete with the influx of cheaper goods (Autor et al., 2016).
The Canadian Conservative government, under Prime Minister Brian Mulroney, was a staunch supporter of free trade. Mulroney's administration played a pivotal role in the creation and implementation of the North American Free Trade Agreement (NAFTA) in 1994. This agreement aimed to eliminate trade barriers between Canada, the United States, and Mexico, fostering a more integrated North American economy (MacDonald, 2020). However, critics argue that NAFTA accelerated the offshoring trend, exacerbating job losses in manufacturing sectors across North America (Lind, 2012). Mulroney's administration negotiated and implemented the Canada-United States Free Trade Agreement (CUSFTA) in 1988, which later evolved into the North American Free Trade Agreement (NAFTA) in 1994 (Cameron & Tomlin, 2000). These agreements were intended to increase trade and economic integration among North American countries, but they also facilitated the offshoring of manufacturing jobs.
Subsequent Canadian prime ministers, including Jean Chrétien, Paul Martin, and Justin Trudeau, continued to support free trade policies. Their administrations made little to no effort to reverse the trend of offshoring. Instead, they emphasized the benefits of free trade in terms of economic growth and environmental sustainability, aligning their policies with the globalist perspectives of leaders like Al Gore and Bill Clinton in the United States (Stairs & Winham, 1985). Their administrations viewed free trade as aligning with broader goals of economic growth and environmental sustainability. This perspective was similar to that of U.S. leaders like Al Gore and Bill Clinton, who championed free trade as a means of promoting economic efficiency and environmental protection through the globalization of cleaner technologies (Hufbauer & Schott, 2005). For instance, Trudeau's government has championed trade agreements such as the Comprehensive Economic and Trade Agreement (CETA) with the European Union, further entrenching Canada's commitment to free trade (Government of Canada, 2017).
Free Trade Does Not Benefit Everyone
Free trade policies have had differing impacts on the political and economic landscapes of Western and Eastern Canada. The political and economic landscape of free trade in Canada reveals stark differences between Western and Eastern provinces. Western provinces, such as Alberta, Saskatchewan, Manitoba, British Columbia, Yukon, and the Northwest Territories, have economies heavily reliant on the export of commodities, particularly in agriculture and oil and gas sectors. These provinces generally favor free trade due to their reliance on global markets to sell their natural resources. For instance, Alberta's economy benefits significantly from free trade agreements that facilitate the export of its oil and gas resources to global markets (Crispo, 1993). Alberta, Saskatchewan, Manitoba, British Columbia, Yukon, and the Northwest Territories—are predominantly involved in the exportation of commodities such as agriculture, oil, and gas. These provinces generally support free trade due to their reliance on global markets to sell their natural resources. For instance, Alberta's economy is heavily dependent on oil exports, making access to international markets crucial for its economic stability (Plourde, 2010). The Trans-Pacific Partnership (TPP), supported by the Western provinces, is an example of a trade agreement that benefits their commodity-based economies by reducing tariffs and expanding market access (Ciuriak & Xiao, 2014).
In contrast, Eastern provinces like Ontario and Quebec are more focused on manufacturing and selling goods within local markets. These provinces tend to be more protectionist, advocating for policies that protect their industries from foreign competition. Ontario's automotive industry, for example, has historically relied on trade protections to shield it from the competitive pressures of global markets (Crane, 2017). Ontario and Quebec, are more focused on manufacturing goods for the domestic market. These provinces have historically adopted a more protectionist stance on free trade. The manufacturing sectors in Ontario and Quebec, which produce automobiles, machinery, and electronics, face stiff competition from imported goods. As a result, these provinces advocate for policies that protect local industries from foreign competition. The auto industry in Ontario, for example, has often lobbied for protective measures to shield it from cheaper imports (Wolfe, 2018). Quebec's aerospace sector similarly benefits from protectionist measures that support local production and employment (Cohn, 2016). This regional divergence in economic interests has led to differing political positions on free trade, with Western Canada favoring liberalized trade policies and Eastern Canada leaning towards economic nationalism (Hale, 2011). The differing economic structures of Western and Eastern Canada have thus shaped their respective stances on free trade. While Western Canada views free trade as beneficial for its export-oriented economy, Eastern Canada remains cautious, seeking to protect its manufacturing base from the disruptions associated with increased global competition.
Working Class Upheaval
In recent years, the frustration and anger among the working class in Canada, the United States, and Europe over job losses due to offshoring have led to a significant political and economic realignment. The 2010s and 2020s have witnessed the rise of conservative and economically nationalist politicians, as well as far-right political parties, capitalizing on the discontent of the working class. In the United States, this discontent contributed to the election of Donald Trump, who campaigned on promises to renegotiate trade deals and bring jobs back to America (Autor et al., 2016). Similarly, in Europe, the rise of right-wing parties in countries like Italy, France, and Germany reflects a growing backlash against globalization and free trade (Rodrik, 2018). In recent years, the economic disruptions caused by free trade and offshoring have led to significant political realignment in many Western countries, including Canada. The loss of manufacturing jobs and the economic hardship experienced by the working class have fueled a rise in populist and nationalist sentiments. In the United States, this discontent contributed to the election of Donald Trump, who campaigned on promises to renegotiate trade deals and bring jobs back to America (Inglehart & Norris, 2016). Similar trends have been observed in Europe, where far-right parties have gained traction by appealing to voters' concerns about globalization and economic insecurity.
In Canada, these dynamics have also played out at both federal and provincial levels. In Canada, this shift has had a pronounced impact on Alberta and other provinces. The increasing support for the United Conservative Party (UCP) in Alberta can be attributed to the economic struggles faced by the province's working class, particularly in the oil and gas sector. The UCP's policies, which emphasize economic nationalism and opposition to federal environmental regulations, resonate with voters who feel left behind by globalization (Anderson & Hale, 2018). The United Conservative Party (UCP) in Alberta has gained significant support by advocating for policies that prioritize local economic interests and challenge the federal government's trade and environmental policies. At the national level, the Conservative Party of Canada has somewhat positioned itself as a defender of Canadian jobs and industries. The more conservative MPs have criticized free trade agreements that are perceived to harm domestic employment, although much still remains to be heard from the Conservative Party of Canada, especially in wake of its new leader Pierre Poilievre. The Conservative Party of Canada has also gained traction by advocating for a more protectionist approach to trade and economic policy, appealing to those affected by job losses and economic insecurity (Banting & Myles, 2013).
This shift towards economic nationalism and protectionism reflects a broader dissatisfaction with the impacts of globalization and free trade. As working-class voters seek solutions to the economic challenges they face, they are increasingly turning to parties and politicians who promise to protect their interests and restore economic security.
What is the solution?
To restore and protect Canadian jobs, several key measures should be implemented. Firstly, creating tight labor markets in Canada is essential. This can be achieved by restricting legal immigration, political asylum, and putting a complete halt to illegal immigration. In terms of trade, instead of maintaining free trade deals, Canada should establish balanced economic protectionism. This would involve imposing tariffs on imported goods while forming fair trade deals that incentivize Western Canadian provinces to retain jobs domestically and engage in ethical business practices. Additionally, rather than the government heavily relying on specific industries, private equity or investors should take on the risks of developing and diversifying industries within their provinces.
Understanding the roles of upstream and downstream industries is also crucial. Upstream industries involve the early stages of production, such as mining and oil extraction, providing essential raw materials for further manufacturing. Companies like BHP Billiton and ExxonMobil exemplify this by supplying materials like iron ore, coal, crude oil, and natural gas. Downstream industries, on the other hand, focus on the later stages of production, turning these raw materials into finished products. Automobile manufacturing by companies like Toyota and consumer electronics production by companies like Apple are examples of downstream industries. In the modern manufacturing landscape, automation plays a significant role. Despite the high level of automation, human oversight remains necessary for quality control, ensuring that machines operate correctly and correcting any errors that arise. As such, that human oversight especially in regards to quality is necessary to enable Canada to be an industrial powerhouse even in the domain of automated manufacturing.
The “Giant Sucking Sound”
The “Giant Sucking Sound”, a phrase coined by Ross Perot; an independent candidate in the 1994 presidential election. That phrase articulated that if nothing was to be done to rearrange or put a stop to free trade deals, that their would be an immense offshoring of jobs(the “Giant Sucking Sound). Consequently according to Perot, North American countries could then face growing economic disparities and social unrest. Such is the case nowadays. The loss of manufacturing jobs has already led to significant income inequality and economic dislocation in many communities (Autor et al., 2013). Without targeted policies to support affected workers and industries, these disparities are likely to worsen, leading to greater political polarization and instability. As manufacturing jobs vanish, the middle class, once the backbone of North American economies, will shrink further. This could result in higher levels of poverty and inequality, eroding social cohesion and trust in democratic institutions (Lind, 2012). Addressing these challenges will require a balanced approach that recognizes the benefits of trade while also protecting the economic well-being of all citizens. The long-term consequences of these disparities could be severe, potentially undermining the economic and political stability of Canada and the United States (Autor et al., 2016).
References
Anderson, G., & Hale, G. (2018). Borders in Globalization: Alberta in a BiG Context. Journal of Borderlands Studies, 34(2), 149–156. https://doi.org/10.1080/08865655.2018.1481447
Autor, D. H., Dorn, D., & Hanson, G. H. (2013). The China Syndrome: Local Labor Market Effects of Import Competition in the United States. American Economic Review, 103(6), 2121-2168.
Autor, D. H., Dorn, D., & Hanson, G. H. (2016). The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade. Annual Review of Economics, 8, 205-240.
Banting, K., & Myles, J. (2013). Inequality and the Fading of Redistributive Politics. UBC Press.
Cameron, D., & Tomlin, B. (2000). The Making of NAFTA: How the Deal Was Done. Cornell University Press.
Ciuriak, D., & Xiao, J. (2014). The Trans-Pacific Partnership: Evaluating the 'Landing Zone' for Negotiations. C.D. Howe Institute E-Brief, 185.
Cohn, T. H. (2016). Global Political Economy: Theory and Practice (7th ed.). Routledge. https://doi.org/10.4324/9781315659695
Crane, D. (2017). Canada-US Auto Pact. In The Canadian Encyclopedia. Retrieved from https://www.thecanadianencyclopedia.ca/en/article/canada-us-automotive-products-agreement
Crispo, J. H. G. (1988). Free trade: the real story. Gage Educational Pub. Co.
Government of Canada. (2017). Comprehensive Economic and Trade Agreement (CETA). Retrieved from https://laws-lois.justice.gc.ca/eng/annualstatutes/2017_6/FullText.html
Hale, G. (2011). Uneasy Partnership: The Politics of Business and Government in Canada. UBC Press.
Hufbauer, G. C., & Schott, J. J. (2005). NAFTA Revisited: Achievements and Challenges. Institute for International Economics.
Inglehart, R., & Norris, P. (2016). Trump, Brexit, and the Rise of Populism: Economic Have-Nots and Cultural Backlash. Harvard Kennedy School Faculty Research Working Paper Series.
Lind, M. (2012). Land of Promise: An Economic History of the United States. Harper.
Lind, M. (2020). The New Class War: Saving Democracy from the Managerial Elite. Portfolio.
Macdonald, L. (2020). Canada and NAFTA. In The Canadian Encyclopedia. Retrieved from https://www.thecanadianencyclopedia.ca/en/article/north-american-free-trade-agreement-nafta
Plourde, A. (2010). Oil and gas in the Canadian Federation (Working Paper No. 2010-1). University of Alberta, Department of Economics.
Rodrik, D. (2018). Straight Talk on Trade: Ideas for a Sane World Economy. Princeton University Press.
Stairs, D., & Winham, G. R. (1985). The Politics of Canada's Economic Relationship with the United States (pp. 1-207). University of Toronto Press.
Wolfe, D. A., & Gertler, M. S. (2016). Growing Urban Economies: Innovation, Creativity, and Governance in Canadian City-Regions (pp. 1-440). University of Toronto Press. https://utorontopress.com/9781442629448/growing-urban-economies/