From "Outside Looking In" to Being a Player: Canada's Forward-Looking Trade Agenda

By McMillan, Charles | Ivey Business Journal Online, September/October 2012 | Go to article overview
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From "Outside Looking In" to Being a Player: Canada's Forward-Looking Trade Agenda


McMillan, Charles, Ivey Business Journal Online


Nothing less than the chance to become a vital trading partner with the world's fastest growing economies - and to reduce the country's reliance on the United States for its exports - awaits a Canada that can conclude trade agreements with Japan and other Asian countries. This scholar describes why Canada needs to put its pedal to the metal and negotiate such agreements.

Stagnant growth, high unemployment, and rising debt are the new mantras of the capitalist, developed world. Exports and trade are now seen as vital tools for breaking the downward spiral of debt and unmet expectations of disgruntled voters. Fortunately, leaders of both the richest economies and the developed world have learned the lessons of the 1930s. Through economic and financial forums like the G-20 - aside from regular meetings and international policy coordination - leaders now know that they must avoid introducing legislation like the disastrous Smoot-Hawley protectionist tariffmeasures passed by the U.S. Congress in 1930.

Canada is part of the shiftto free trade and an active participant in free trade negotiations (FTAs) with the European Union and the Trans-Pacific Partnership, (TPP). It also has a bilateral pact with Japan. Each agreement is important on its own. Together, they represent a dramatic opening of the Canadian economy and a clear shiftfrom the managerial "culture of contentment" so derided by Canada's global thinkers. Despite an over-riding consensus that Canada's biggest economic challenges remain relatively low productivity and tepid innovation relative to key competitors, the country remains wedded to a small number of exportable products and services that rely, with only a few exceptions, on the U.S. market (some 26 of 1250 exported products account for over 50 per cent of all exports). Even here, perhaps half of Canada's manufactured exports come from intra-firm transactions, e.g. Ford Canada selling to Ford United States.

With a parliamentary majority, the Harper government has made the negotiation of serious trade agreements a front-burner issue in Canada. As depicted in Table 1, Canada's trade and investment strategies have changed dramatically in a generation. For most of its history, Canada's relatively closed economy has exploited John A. Macdonald's National Policy. Successive national governments have built an east-west manufacturing trade, condoned living with high tariffs and low production runs, and attracted foreign investment behind these tariffwalls, all by enabling the setting up of 'miniature replica' subsidiaries of the parent. Provinces reinforced these policies with high inter-provincial tariffs and trade barriers, and by extending them to the professions, construction, government procurement, and education.

The U.S.-Canada FTA, later expanded to NAFTA, has dramatically changed the domestic economic axis from east-west to north-south, as Canadian firms were forced to experience the brutal price competition in the open U.S. market. The sheer size of the U.S. market and the fact that there is no geographic centre, just a number of significantly different regions, have forced Canadian companies to consider carefully issues such as corporate scale, plant scale, the need for long production runs to reduce unit costs, and the role of price alone as a competitive weapon. Indeed, Canada's small population, only 34 million, is slowly forcing Canadian companies to also consider other markets where economic growth is higher than it is in North America.

The announcement of FTA talks with Japan will bring closer economic integration and position Canada within the industrial mainstream of Asia's growth. Indeed, closer Canada-Japan ties will make both countries key players in the proposed Trans-Pacific Partnership. This paper address these trade issues, the impacts on Canada, and the implications for managerial decision-making.

THE ASIAN MIRACLE

From 1953-1985, Japan's economy generated the largest increase in wealth creation in world history.

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