Prime Minister Justin Trudeau returned home from his first meeting with U.S. President Donald Trump this week in the cold comfort that Trump’s pronouncement that Canada-U.S. trade relations were “outstanding” was quickly qualified as “a much less severe situation than what’s taken place on the southern border”.
As for Canada’s most important trade agreement in the world, all that NAFTA needs is a good “tweaking”. As he considers these comments, Trudeau would be wise to reflect on another time in history when a Canadian prime minister had to deal with a difficult “America First” administration in Washington.
The year was 1971.
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The prime minister was his father, Pierre Trudeau. Canada was facing strong protectionist headwinds from the Nixon administration, which claimed that unfair trade and currency practices were damaging the U.S. economy. In June 1971, these winds hit gale-force speed when, without warning, Nixon imposed a 10-per-cent surcharge on manufactured imports to the U.S.
While the surcharge was lifted six months later, the episode prompted Pierre Trudeau’s government to take the long view on how best to protect Canada’s economic interests from over-dependency on a volatile U.S.
Rather than accepting the status quo or pursuing closer economic integration with the U.S., it advanced a “third option” for Canada’s global trade direction.
Almost half a century later, the Third Option makes for timely reading with its pledge “to pursue a comprehensive long-term strategy to develop and strengthen the Canadian economy and other aspects of its national life and in the process to reduce the present Canadian vulnerability (on the U.S.)”.
To advance this goal, Canada pursued “a contractual link” with the recently expanded European Union.
It also sought a bilateral arrangement with Japan, then beginning its trajectory as a global powerhouse in automotive and electronics trade.
When the Third Option was launched, the U.S. market accounted for 69 per cent of Canada’s exports at a time when exports constituted 24 per cent of our GDP.
Ignoring trade policywould be a mistake for the Trudeau minority government
Today, we face another “America First” government threatening to disrupt NAFTA and introduce a border adjustment tax on U.S. imports. But today the stakes are higher, with the U.S. taking over 76 per cent of our exports, with almost one-third of Canada’s GDP dependent on trade.
In a rather droll assessment, former Canadian Ambassador Alan Gotlieb recently commented that “after two generations of trying to reduce Canada’s dependency on the U.S.
market, it cannot be said that we have succeeded.” Far from it. Indeed, if ever there was a time to make a concerted effort to diversify our trade, surely that time is now.
What is Canada’s economic ‘fourth option’?
Our government is rededicating Canada to a more expansive role in global affairs. And we have emerging platforms on which to launch a “Third Option 2.0” that hold better promise of success than its mid-1970s precursor.
Let’s start with the EU where Canada has recently concluded the Canada-EU Comprehensive Economic and Trade Agreement (CETA).
CETA not only extends well beyond the “contractual link” envisaged in the original Third Option, it breaks new ground for trade agreements around the world.
Moving well beyond free trade in goods and services, CETA has a broader scope than NAFTA with provisions for regulatory cooperation, investment protection and access to government procurement.
Free trade pierre trudeau third option
CETA covers a remarkably large market. After excluding intra-EU trade among its 28 members, the EU represents the world’s second-largest importer of merchandise trade and the largest importer of commercial services — almost a third larger than the U.S.
as a services importer.
Turning to the next Third Option target, Canada had been poised to enter into a new era of freer trade with Japan under the Trans-Pacific Partnership.
That was until President Trump rendered the TPP dead on arrival by announcing U.S.
withdrawal in his first blizzard of Executive orders. For Canada, Japan was the crown jewel of the TPP — promising freer access for Canadian exporters to the world’s fourth-largest import market. Despite the Trump administration’s mortal blow, there is a strong case to quickly resuscitate the TPP framework as a basis for a new Canada-Japan trade agreement. However, getting Japan’s attention may be a challenge — especially since the U.S.
has declared its intent to negotiate a bilateral trade deal with Japan and the EU is just concluding one.
In 1970, Pierre Trudeau’s government earned an early-adopter advantage with China as Canada became the first western country to recognize the communist regime.
However, this failed to translate into a meaningful trade advantage for Canada, which now ranks behind France, Australia and Chile as exporters to China.
Free trade within Canada - Andrew Scheer
Nevertheless, today we have a new advantage that we can deploy — the strong and emerging presence of Chinese nationals in our immigration and investment profile.
For the past decade, China has ranked as the third largest source country for Canadian immigrants.
Many Chinese immigrants bring valuable business connections in the Chinese economy that could be tapped to support new trade ventures.
Consider, for example, the role that wealthy and much-maligned Chinese investment speculators in Canada’s real estate markets could play as pathfinders for Canadian export opportunities in the Chinese market. Maybe it’s time for us to build another success story in Canada’s immigration revolution and use the immigrant channel to our trade advantage.
Given its sheer dominance in Canada’s trade profile, we cannot expect to offset the critical importance of open access to the U.S.
market to the Canadian economy. However, through a renewed effort to diversify our trade, we can start to protect Canada’s economic interests from rising walls and closing doors in the U.S.
To advance the new role he seeks for Canada on the world stage, Prime Minister Trudeau should take a page from his father’s book and pursue a new Third Option — one that could grow our trade and reduce our dependency on the U.S. at the same time.
Stuart Culbertson is a former deputy minister in the provincial government.
He served as B.C. Trade Representative during the Canada-U.S. Free Trade Agreement negotiations.