Gael Campan, senior economist, and Miguel Ouellette, director of operations and economist, Montreal Economic Institute
With our southern neighbours' recent election of Joe Biden, many commentators and interest groups have expressed relief at the arrival of this career politician with a calmer tone than his predecessor’s. But when it comes to economics, can we really expect a less protectionist president who will smooth trade relations with our country?
Like many international trade experts and diplomats, we do not think that this Democratic victory will necessarily mean freer trade between our two countries. While the disputes in the aluminum and steel sectors could settle down, several observations lead us to think that the famous “Buy American” mentality, which amounts to favouring protectionist measures meant to help – but that actually hurt – the American economy will be the new normal. The president-elect even made it one of his campaign slogans.
Within the Democratic Party, there is an anti-free-trade movement, fostered by the populist Bernie Sanders, that seems to be gaining ground despite the empirical economic evidence that discredits this 16th-century mercantilist vision. What’s more, Mr. Biden has openly admitted to being in favour of prohibiting Canadian companies from bidding on public infrastructure contracts at the state and municipal levels, something they currently can do.
Nor should we forget that Western Canada in particular will probably suffer, at least in certain respects, from the results of this election. Whereas Donald Trump had approved the Keystone XL pipeline that will provide more than 2,000 construction jobs to Albertans, Mr. Biden has promised to put an end to the energy project. Although Americans would lose quality jobs and economic activity that are sorely needed during this pandemic, this could also be another tough blow for Canadians.
Regardless of who sits in the Oval Office, it is hard to exaggerate how important trade with the United States is for Canada. In normal times, it accounts for 72.8 per cent of Canadian exports and 51.5 per cent of our imports.
Though the fact that we share a continent naturally facilitates trade and constitutes a mutual comparative advantage, this benefit can quickly dissipate owing to coercive protectionist measures and strained trade relations, as we have seen in the softwood lumber saga, where the two governments have been in mediation for years over tariffs. Turning inward has never promoted a general improvement in living standards.
Affected consumers must turn to other options, which consist of products that were presumably not their first choice because they were more expensive or of lower quality. Affected producers, for their part, have to deal with protectionist constraints and their attendant costs. Except for the specific companies or sectors protected by quotas and tariffs, everyone loses.
It’s not just a bilateral matter, either, since the United States imports raw materials and intermediate goods that it processes to then sell to us. Therefore, when U.S. trade with China or Europe deteriorates for political reasons, the products that they offer us generally become more expensive.
For example, the electronic devices we love, and on which you may be reading this, are made from dozens of components from all around the world, even if they are assembled in one specific location. If the trade relations between the countries that participate in the manufacture of such devices deteriorate, it is consumers who end up paying the price.
Free trade is more important than ever. Two-thirds of the tourists who visit Canada are American, and the COVID-19 health and political crisis has already reduced the tourism sector’s revenues by nearly $50-billion. With continued uncertainty regarding the anticipated arrival of a vaccine and the complete reopening of our borders, the free movement of goods is a lifeline we need to hang onto.
A retreat to protectionism is the last thing our two countries need.
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