Canadian businesses and policymakers continue to grapple with the tumultuous impact of Donald Trump’s proposed tariffs, compounded by his recent 30-day suspension of these measures. It is evident that the landscape for free trade and its advocates is becoming increasingly challenging.
While the U.S. president may represent the most vocal and significant threat to free trade, he is not the sole figure contributing to this shift.
“We are transitioning towards a less free-trading environment, primarily due to current decisions that, while not necessarily irreversible, will entrench us in this trajectory,” stated Mark Manger, a professor of political economy at the Munk School of Global Affairs and Public Policy in Toronto.
He highlights a growing trend of isolationism among various nations.
In France, far-right leader Marine Le Pen has characterized globalization as “manufacturing by slaves for selling to the unemployed,” advocating for a movement driven by “intelligent protectionism and economic patriotism.”
In the United Kingdom, Nigel Farage’s Reform UK Party has achieved a historic first by leading a recent poll, narrowly surpassing the ruling Labour Party. Farage is widely recognized for his role in promoting the U.K.’s exit from the EU’s free trade zone, known as Brexit.
Additionally, under Prime Minister Narendra Modi, India has emerged as one of the most protectionist economies globally.
Scott Lincicome, vice-president of general economics at the Cato Institute, a Washington-based think tank, remarked, “We are witnessing a significant amount of populist rhetoric, and we are certainly not experiencing the harmonious era of the 1990s under Clinton, when there was a sense of unity in a post-Cold War environment.”
He further noted that outside the United States, the threats to trade are primarily rhetorical in nature. However, this does not diminish their potential impact.
Lincicome expressed concern that Trump’s readiness to disrupt decades of free trade agreements could inspire other global leaders to follow suit. “It only takes one individual to initiate this disruption, intentionally undermining the free trade and supply chain connections that have been established over many years,” he stated.
So what is a country like Canada supposed to do?
Diversifying its trade partners is a good first step.
Royal Bank’s CEO wrote a note to staff this week in the wake of the U.S. decision to pause its tariffs.
Dave McKay said many are upset and disappointed that Canada’s economic partnership was being put into question.
But, he said he remains optimistic about the future for Canada’s economy.
“The world wants what Canada can provide in great abundance. We can feed and fuel the growing world, and be a leader in energy, agriculture, critical minerals, advanced manufacturing and technology,” wrote McKay.
To do that, he said Canada needs to remove internal trade barriers, speed up approval processes for energy and infrastructure projects, make Canada more competitive on taxes and support home-grown tech innovation.
There are indications that Canadian politicians may finally be prepared to take action to enhance internal trade and eliminate obstacles to development.
Transport Minister Anita Anand expressed last week her belief that these obstacles could be addressed within a month.
Following an emergency meeting convened by Prime Minister Justin Trudeau with provincial and territorial leaders, she stated, “Every minister present recognized the necessity, as do I and our government, to act in unison, to capitalize on this opportunity, and to do everything possible to diminish these trade barriers.”
“The momentum is evident. The time is now, and we are taking advantage of it.”
Eliminating internal trade barriers has the potential to increase Canada’s GDP, reduce consumer prices, and offer Canadian businesses alternatives outside the U.S. market.
“Removing non-geographic internal trade costs can elevate trade volumes as a percentage of GDP by approximately 15 percentage points,” noted University of Calgary economist Trevor Tombe in a 2019 paper for the International Monetary Fund.
Diversifying that trade is difficult.
“Canada, geographically, has a hard time trading with others,” said Lincicome. “It’s pretty easy for someone in Canada to trade with someone in Detroit. Or Vancouver with Seattle. It’s a lot harder to sell to China or sell to Europe.”
He says that trade can and does happen, of course. But it’s more expensive and comes with more logistical challenges.
Lincicome says the giant U.S. economy has a sort of gravitational pull on a smaller nation like Canada. Breaking out of that is difficult.
The situation is complicated by a noticeable shift in attitudes towards globalization.
Lincicome indicates that while global trade is not increasing at the same rate as in the past, it continues to grow. He asserts that despite the prevailing discourse, Canada still has opportunities to expand its export market.
“I believe Canada is not in an advantageous position. However, I do not think the global community is entirely rejecting Canada as Donald Trump appears to suggest,” he stated.