Canada’s Path to Success: Free our People and Embrace the Global Economy

Wake up, Canada — we are about to inflict the worst economic self-harm in our history.

The misguided policy of retaliatory Canadian tariffs is getting in the way of better solutions that could set us up for future success.

The Trump tariffs are coming our way, as reconfirmed days ago by the US President himself.

And even if they are delayed, the damage has been done to trust in the US, leaving in its wake a lasting Canadian boycott on US goods and no economically sensible renewal of the USMCA trade agreement next July.

The likely cost of hiking tariffs is enormous: a permanent loss of around 4% of our economy, combined with failed businesses, massive job losses, a weaker currency, and slower long-term growth.

Canada’s political leaders have responded in a predictable way to Trump’s grossly disproportionate attack on our trading relationship: they, like their constituents, want it to go away — and they also want revenge.

The chosen instrument for our response is nearly dollar-for-dollar tariffs on US exports to Canada, precisely chosen to inflict damage on American producers who might change Trump’s mind on the matter.

The inherent problems with this approach should lead to its rejection by our political leaders.

First, most of the economic damage from our response hurts Canadians and does little to deter Americans.

The Canadian tariffs are estimated to more than double the economic pain of the US tariffs.

That is because we pay for the retaliatory tariffs, directly raising costs for consumers and producers using those products. This is a misguided policy that lowers living standards and hampers productivity.

There will also be a longer term effect of diverting money from the private sector into government coffers. Since tariffs are taxes, their effect will be to reduce overall trade. We need a vibrant response from the most productive parts of our economy to deal with this shock, but instead we will get state-influenced trade flows and subsidies that will inhibit required change.

On the US side by contrast, the impact of Canadian retaliation is miniscule, amounting to less than 0.1 percent of their economy.

Yes, there will be places in the US with more concentrated damage than others (think auto makers or wineries), but this will pale in Trump’s mind against the glories of a coming golden age for American manufacturing. As someone said recently, Trump does not do decimal points.

Which leads to the second problem: the man is not for turning. Trump sees tariffs as nearly as beautiful as love, a means to shift business permanently from foreign climes to the US.

The likeliest places to see such business destruction are America’s nearest and largest trading neighbours, Canada and Mexico. Therefore, we will bear the brunt of the assault. Our businesses are meant to give up market share to US competitors and new investors may increasingly choose to locate inside Fortress USA.

His trade policy is therefore a permanent change in our economic outlook, the end of our political wager on hemispheric free trade that began in the late 1980s. His approach is not going to change due to some tit-for-tat retaliation that eventually leads both trade partners to renegotiate tariffs lower (as has happened in the past).

Third, our leaders do not seemingly understand Trump. He plays political hardball with bluster and his immediate temptation in response to the Canadian tariffs will be to ramp up his own. It plainly says so in his original executive order.

What is our response to 40% or 50% announced tariffs? Double down on our self-inflicted economic destruction? That is not sensible, even given the ramping up of Canadians’ anger from what is seen as bullying behaviour from a formerly trusted neighbour.

Our politicians can and should do better than reflect these sharp attitudes. To do otherwise is to play Trump’s game and that is not in our national interest. But we can draw one important lesson from Trump: we can win by ultimately being successful.

A better policy response should reflect several realities: the world has changed permanently, we cannot influence the Americans, our policies need to be in line with this new political world, and we need to make deep structural changes to succeed.

In other words, it is decision time for our country. This, I think, is the emerging ballot question for the coming federal election: what is the new path to Canada’s future?

So, instead of damaging the economy by raising costs, directing trade, and continuing to focus on the US, let’s free our people in as many ways as possible to seek out new economic opportunities. Politicians perennially claim to want to open Canada up to business, so let’s do exactly that.

There are numerous places around the world that show how to dramatically change policy to free people, attract investment, and supercharge the economy.

Contemporary examples are Singapore, Hong Kong, Taiwan, South Korea, Australia, New Zealand, Israel, UAE, Saudi Arabia, Ireland, Poland, the Baltic states, Chile, and, with possible results soon, Argentina.

Every country has a different story but the general lesson from these places, many of which are richer than Canada and all of which have been growing faster, is to embrace the global economy.

They tend to have higher trade ratios than us and have much more diversified trade bases. As highly educated and urbanized nations, their traded products are increasingly tech and service related. Finally, business regulation tends to be lower and openness to competition is higher. These are places that are highly attuned to the dynamism of the global economy.

Instead of abandoning our free trade approach in a misguided reaction to the US, we should copy these success stories by leaping ahead and becoming global free traders.

We already have a number of (nearly) free trade deals but we can do better. A policy of unilateral free trade, dropping all tariffs and trade restrictions, would send a compelling message around the world that there is an alternative to Trumpist economic nationalism and that we are the leading large nation in that movement.

Having freed our external border, we also need to turn to our internal market, which is anything but free.

Many of Canada’s economic sectors suffer from excessive regulation, subsidization, and lack of competition. A (very long) short list is energy, dairy, mining, finance, telecom, transportation, education, health, and culture. The national economy is also regionally balkanised and suffers from needless barriers to trade.

We may be a highly multicultural society but our economy is decidedly dominated by local, Canadian, or American businesses.

By eliminating our external and internal trade barriers, we can provide an attractive platform for Canadian and international investors and entrepreneurs in the emerging sectors of tomorrow’s economy. We will know we have succeeded when our business and trade makeup reflects the diverse nature of the people living in this great country.

But first, let’s not start this necessary transition with an economic sucker punch to ourselves. Import tariffs on our prosperity are so 2024.