The cacophony of “elbows up” in Canada since the American 51st annexation intimation and trade rhetoric, including, the very real implementation of broad tariffs, has brough Canadians together to demand a punitive response from the Canadian government. While this approach might raise the level of nationalism, Canada does not have the leverage to make sweeping reciprocal economic policy implementation without pernicious impacts on the Canadian economy. It does not mean, however, that there is only one approach to “elbows up”.
The following discussion explores some of the historical approaches to trade relationships Canada has enjoyed, the challenges, and the various options pursued to address the long-term stability for the Canadian economy. Depending on the vantage point, each of these historical and current proposed approaches represent alternative methods of “elbows up”for Canadian trade (culture, and identify).
Historically, Canada has been dependent on a hegemonic trading partner to ensure access to the global market and stability of trading of domestic goods. In the 1800s, Britain was Canada’s primary trading partner exporting staple products, namely, primary industry production, while importing manufactured goods from the “mother country”. This does not mean that Canada didn’t trade with other counties but the reliance on a single market trading relationship dominated the Canadian economy.
During this period, Canadian economic activity was shifting to a more diversified trading arrangement, especially, accessing the ever present and growing American economy. Ironically, the American political culture oscillated between reciprocal trade or free trade and national protection. In the 1850s, Canada and the United States signed the Canadian-American Reciprocity Treaty to encourage continental trade between the two countries. With the continued vacillation of economic policy options in the US, this culminated in the American abrogation of the Canadian-American Reciprocity Treaty in 1866.
In the years and decades following the revocation of the Reciprocity Treaty, there were ebbs and flows of political interest in a new treaty between the two countries. It wasn’t until after World War II when both nations joined the General Agreement on Tariffs and Trade (GATT) that trade increased in earnest and where tariffs began to steadily decline.
During the boom of the 1960s, Canada and the US signed the Auto Pact, giving Canada access to the American auto manufacturing sector. While this was a boon for the Canadian economy, it was restricted both geographically and sector specific. In the 1970s, Canada was focused on diversification of trade and examining its economic strategic, including the relationship with the United States. The Federal government’s white paper highlighted three options: Maintain the status quo with the US (Option #1); increased continental integration or deeper ties the U.S. (Options #2); and reduce dependency on the US by diversifying trade (Option #3). Ironically, similar to the current relationship with the US, the Third Option emerged in response to the tariffs the Nixon administration implemented that affected Canadian exports.While there was movement to address these options, a comprehensive policy or economic strategy was not fully addressed until the 1980s when the Macdonald Reports called the Royal Commission on the Economic Union and Development Prospects for Canada was commissioned. The final recommendations were presented to the newly elected Progressive Conservative government in 1984. The recommendations of the Report reflected a conservative approach, in particular, a focus on Option #2: continental trade. Continental trade evolved into the Free Trade Agreement (FTA) with the United States.
In the 1980s, especially, during the FTA negotiations, multiple voices, including this author, advocated for an integration of the Third Option proposed in 1972. The Third Option aimed to pursue a multilateral approach to trade beyond the US, reducing Canada’s reliance on the integration of trade on a bilateral basis. The FTA policy debates of the 1980s and arguments reverberated back to the 1970s, contending that Canada needed to reduce vulnerability and minimize US dependence while focussing on a broader spectrum of trade with other countries. Similar to the 1970s, instead of greater dependency, vulnerability, and integration, Canada should pursue a multilateral approach, transforming the economy, geographic ties, and economic landscape from bilateral to more global trade. It was argued that the Third Option would open up a transformative process of development and diversification of the Canadian economy and global trade.
During the 1988 Federal Election, the Conservative Party based the success of their election campaign on the FTA. The Conservative Party was successful in their election and the decision was made to implement a continental integration of trade, reinforcing geographical ties, and minimize the economic changes to the landscape. Since the success of the FTA, trade within North America has expanded and increased integration of the geographic and economic ties. Concomitantly, the US entrenched itself as Canada’s hegemonic trading partner.
With the shift from one trading partner to another, it is clear that Canada’s historical trading relationship has been based on the hegemony of a primary trading partner. The difference between the British and American trade dependency of the 19th & 20th centuries, respectively, is the approach to trade. The British focussed on portfolio investment of Canadian companies whereas the Americans supported direct investments. One supported Canadian entrepreneurial development while the other created branch plant dependency, beholden to the parent company in the US. As such, corporate Canada’s executives became compradors (agent or servant) for the US parent company. There primary business operations are based on serving the local market rather than expanding beyond the geographic boundaries to explore global trade. These business executive received their business direction from Washington rather than Ottawa—limiting the desire and impetus to pursue global trade vs continental trade.
The hegemonic trading relationship with the Americans and the comprador nature of Canadian business elite should be the approach to building trade for Canada. Diversification of trade and maximizing multinational trading partners focusses on nurturing the American trading relationship while broadening the scope and breadth of trade internationally. The elbows up approach is based on diversification of trade while adjusting to international and technological change to achieve development of Canadian entrepreneurialism as an economic strategy to maximize the value in trade domestically and globally.
Diversification of trade and development of entrepreneurialism may not have the degree of rigidity or forcefulness the cacophony of discord that Canadians have for the American relationship, it is subtler with more longer-term implications. Instead of challenging the Americans on trade, Canada has an opportunity to pursue an economic strategy that demands opening up and supporting global markets. Nurturing entrepreneurs locally, focussed on developing products and services that are in demand interprovincially and, especially, globally, has potential to open up markets for Canadian goods and services. It is quintessential to ensure entrepreneurs have the appropriate support and tools to maximize the potential that international and interprovincial trade can offer them in growing their business—scaling their operations to take advantage of markets outside of their local geographic region. The greatest challenge for the political elite in Canada is to ensure Canadian banks and financial supports are focussed on entrepreneurial development and, maybe even more significant, is to convince the business elite to reposition their business activities to take advantage of global trade and the multi-national trade agreements Canada has around the world.
As mentioned, it is not only global trade but interprovincial trade that can support diversification of trade. It opens up markets with Canada and beyond the local and provincial boundaries to scale up entrepreneurial operations. Diversification of trade is within Canada, as well. The opening up of the domestic markets across provincial boundaries is imperative to increase Canadian trade within the multi-jurisdictional boundaries of the provinces and territories.
Interprovincial trade implies that each province should be able to trade and transport their resources between the provinces. This opens up the polemic on the natural resources trade. The complexities are broad and involve a dynamic range of values, priorities, and political willingness. Interprovincial trade is broader than natural resources: it includes regulatory issues, standards, labour movement, and other related elements. Any resolution of interprovincial natural resource trade will only arise if there is political will. The important point it that there is a possibility to understand and build towards interprovincial trade to diversify trade and build entrepreneurial business opportunities.
The elbows up approach to the American administration resonates with a strong nationalistic message. Canada can pursue an alternative approach that also represents a form of elbows up: diversification of trade globally and internally with the support of building a strong entrepreneurial environment. Canada and the rest of the global trading world is in the midst of an existential crisis: the historical relationships with the US have been changed, if not ruptured. Success of a Third Option will be grounded on the political and economic will of the elite in Canada as well as the other nations commitment to explore options outside of the US.
Canadian Politicians and business elite must be committed to pursuing the Third Option to achieve the desired result of diversified trade around the world and within the country. If Canada is to maximize its interprovincial trade, build and bridge greater global trading partners, and to mitigate the hegemonic American dominant trading relationship, the Canadian rather than the provincial concerns are the priority to ensure the sustainability of our economy and, most importantly, our political and economic independence.
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