Free trade is vital to Ontario
Alberta recently got some good news from the United States when President Trump said he would approve the Keystone XL pipeline, which will help ensure Alberta receives a globally competitive price for its oil.
But for Ontario, a jurisdiction with a significant manufacturing sector that relies heavily on exports to the U.S., there’s reason for concern about developments in Washington—specifically, the new president’s strong rhetoric against free trade.
The president’s inaugural address made the case that free trade has hurt the American economy. “Protection will lead to great prosperity and strength,” said Mr. Trump. Such statements, along with Trump’s denunciations of NAFTA on the campaign trail, have rightly set off alarm bells in Canada.
It was certainly reassuring to hear David MacNaughton, Canada’s ambassador to the U.S., fresh from discussions with President Trump’s transition team, say that Canada is “not at all” the target of anti-trade statements. Nevertheless, with the White House continuing to insist that NAFTA must be re-negotiated and refusing to rule out total withdrawal from the agreement, it’s difficult to know exactly how the dust will settle.
This uncertainty is worrisome because Canada benefits enormously from free trade with our southern neighbours. Any threat to the free flow of goods and services across the border is a threat to Canadian prosperity.
How important is trade to the Canadian economy? Consider that in 2015, exports accounted for nearly a third of Canada’s gross domestic product. The most recent available Statistics Canada estimates suggest exports directly and indirectly account for about three million Canadian jobs.
Imports are also beneficial to the economy in other ways, as they provide consumers with access to less expensive goods, and businesses access to materials and intermediate goods that they use to build more complicated final products. Ontario’s auto manufacturers, for example, import many of the materials they use to make cars from other countries (including the U.S.) and then export many of the completed products back across the border.
Over the years, free trade agreements have made it less expensive for Canadian consumers and businesses to buy imported goods. Consider that the effective tariff rate (basically the average tax we impose on goods entering the country) is now about a third as high as it was in the mid-1980s. Back then, big tariffs on certain goods and industries created a significant drag on North America’s economic performance.
An American re-consideration of NAFTA, or other new restrictions on trade, would threaten the important gains of recent decades. Although other trade partners are increasingly important, too, for Canada generally and Ontario specifically, the U.S. remains by far and away our largest trading partner.
Consider that in 2015, 81 per cent of all goods exported out of Ontario were sent to the U.S. Meanwhile, more than half of all goods imported to Ontario from abroad came from America. Clearly, the reconstruction of trade barriers at the border would have serious implications for our province’s economy.
In recent decades, freer trade has created substantial net benefits for both the American and Canadian economies. In the weeks and months ahead, one of the most important tasks facing our political leaders will be to effectively communicate with the new administration about the mutual benefits of free trade between North American jurisdictions.