U.S. President Joe Biden made a telling gaffe during his speech to Parliament last week. It came when he wanted to thank Canada for doing its part to help with the migration crisis in the western hemisphere.
“So, today I applaud China for stepping up – or, excuse me, I applaud Canada – you can tell what I’m thinking…,” Mr. Biden said.
Paging Dr. Freud.
Mr. Biden’s speech contained all the usual talking points about the relationship between his country and this one: the world’s longest undefended border; the $1.3-trillion economic link; the shared belief in freedom and democracy; the United States having a “no more reliable ally, no more steady friend,” even if that “doesn’t mean we never disagree.”
But in his words, both intended and otherwise, it was apparent that while the President was addressing legislators in Ottawa, his thoughts were on the Communist Party in Beijing, and on the threat posed by China’s economic power.
It is also increasingly apparent that Mr. Biden’s plan to contain Beijing involves a major re-evaluation of the liberal trade regime that has underpinned Western prosperity – particularly for smaller, open economies such as Canada’s – in the decades since the end of the Second World War.
He called on Canada to join in his project to repatriate to North America the resourcing and manufacture of critical components in technology and the green economy: semiconductors, and the minerals used in the production of electric vehicles and the batteries that power them.
At first reading, this looks like an attractive offer. The pandemic exposed the fragility of global supply chains, and Russia’s illegal, brutal and disruptive war against Ukraine has been a dire warning about the need for secure sources of strategic materials, including energy and food.
China has helped bring on this moment, too, through its takeover of Hong Kong, its cruel treatment of Uyghur Muslims, its interference in Canadian elections, the kidnapping of the two Michaels, and the belligerent authoritarianism and aggression of President Xi Jinping.
Faced with those dual geopolitical challenges, it does seem prudent that two democratic allies so closely linked – geographically, historically, philosophically – should repatriate supply chains currently dominated by China and other Asian countries. Indeed, Finance Minister Chrystia Freeland last year touted the idea of democratic countries “friend-shoring” their supply chains.
In some ways, Mr. Biden’s new deal is already up and running. The U.S. has assured Canada that electric vehicles built here and exported south will be eligible for the tax credits in Mr. Biden’s Inflation Reduction Act, a bill that pumps billions of dollars worth of subsidies into the American economy.
And Volkswagen recently announced it will build a massive car battery plant in Ontario, its first outside of Europe, thanks to undisclosed subsidies from Canada and Ontario. Most likely, those grants will run well into the billions.
But there are good reasons for Canada to be wary of moving as quickly and as aggressively as Mr. Biden would like.
For one, Canada will have to compete in the subsidy war created by the Inflation Reduction Act. Governments will be picking winners and losers in Canadian industries, giving millions to one, billions to another, and ignoring others altogether. Taxpayers will be footing the huge bill, regardless.
Another concrete worry is that prices for components and minerals sourced in North America will likely be more expensive than those from overseas, raising costs for everyone.
And then there is the concern that the U.S. is leading a charge against the once cherished idea that free trade is a key to global peace and stability. By calling on its hemispheric ally to join in what is essentially a trade war against a competing superpower, the Biden administration is asking Ottawa to back away from the liberal trade regime that has been an indispensable pillar of this country’s economic success.
This might be a good idea for the U.S., which wants to preserve its status as the world’s economic superpower. But friend-shoring (which sounds so appealing) could easily devolve into not-so-appealing protectionism and, with not much more of a jump, to the frontal assault on free trade by Mr. Biden’s predecessor, Donald Trump.
There’s a warning in that history. Take it from Mr. Biden himself. When he thinks about Canada’s economy and where he wants it to go, he’s not thinking about us. Not really.