Trade

Asia

China

Global

India

United States

With the difficult renegotiation of the trade agreement with Canada’s largest trading partner now resolved, it’s time for Canada to get serious about trade diversification.

The experience of renegotiating NAFTA – or USMCA as it is now called – has highlighted Canada’s vulnerability to one dominant trading partner that buys roughly 75 per cent of our exports.

As a country, we should not be in this position. We need to diversify our trade beyond the United States and increase our links to rapidly growing emerging market economies, particularly in Asia, despite the “anti-China” clause in the USMCA.

Given that growth has pivoted to these emerging markets in the last 15 years, the first question is why has this not happened already. The answer is straightforward.

For a long time, being right beside the United States – the biggest, richest market in the world – has been a great ride for Canada. What’s more, we’re very comfortable and good at doing business with Americans.

Fewer benefits of living next to U.S.

So why diversify? The short answer is being right next door to the United States is not the ride it used to be. Part of this is the alarmingly protectionist sentiment of U.S. President Donald Trump’s administration, but the root of the answer pre-dates Trump.

In the last 15 to 20 years, the United States has not been the engine of global growth that it was in the past. The U.S. share of global growth has been almost cut in half in the last two decades, falling from about 32 per cent in the 1990s to about 17 per cent in this decade. Over the same period, Asia’s share has risen from 32 per cent to just over 50 per cent, according to our analysis of World Bank trade data from the Institute for Competitiveness & Prosperity. This has created a double challenge for Canada.

First, we are significantly underexposed to emerging market economies, so we are getting little upside from their acceleration in growth.

Too engaged with sluggish economies

In addition to the 75 per cent of our trade that goes to the U.S., another 10 per cent goes to other slow-growth advanced economies, largely in Europe. Only about nine per cent of our trade is with faster-growing emerging economies like China, India, South Korea, Mexico and Brazil.

This is much lower than our peers. In Germany, the share of exports to emerging markets and other developing countries is in the 20s; for Japan and the U.S., it’s in the 30s; and in Australia, it’s in the 40s.

Containers wait to be unloaded onto a container ship berthed at the Australian port of Melbourne. Australia does enormous trade with emerging markets, far more than Canada (photo by Shutterstock)

Second, these rapidly growing economies are providing increasingly fierce competition for our products in the U.S. market. In 2000, Canada was the leading source of American imports. Today, China has the largest share of U.S. imports at 22 per cent, up from only eight per cent in 2000. In the same period, Canada’s share has declined from just over 18 per cent to about 13 per cent.

We should have developed a diversification strategy a decade ago. But without a crisis, there has been little imperative. Call it lack of vision, risk-taking or leadership.

Asian markets seen as risky

Emerging markets and Asian markets, in particular, are often seen as distant and less familiar. They are seen as risky and more expensive to penetrate. The consequences have been stark.

In the last 15 years, Canada’s share of the world export market has slipped from about 4.5 per cent to about two per cent. Part of this trend was inevitable as large emerging market economies joined the global trade and investment network, but Canada’s slide has been particularly precipitous.

Across the world’s Top 20 exporting countries, Canada’s performance since 2000 has been the second worst – only Japan has seen a bigger decline in its trade share than Canada.

Canada is losing share in the U.S. market that itself is losing share globally. We should instead be focused on gaining share in markets that are gaining share. This means diversifying our trade towards emerging market economies, particularly in Asia.

The place to start is with Asia’s two biggest economies, India and China. The new USMCA contains provisions that allow signatories to pull out of the deal if one country pursues a separate free-trade agreement with a “nonmarket country” – namely, China. But that should not be a barrier to this pivot.

India is a thriving democracy with strong ties to Canada. And as highlighted in a recent report on trade diversification from the Public Policy Forum, there is much that can be done with China short of a comprehensive free-trade agreement through sectoral agreements that offer “the best means for realizing quick and significant gains.”

Instead of waiting for a crisis, let’s make trade diversification the priority it should have been for at least the last decade.

Tiff Macklem is the dean of the University of Toronto’s Rotman School of Management and a professor of finance.

This article is republished from The Conversation under a Creative Commons license. Read the original article, including Macklem's disclosure statement.

Lessons in Chinese history as America shuts off from the world: �Թϱ�� expert

Christopher.Sorensen — Fri, 06 Jul 2018 04:00:00 +0000

Lessons in Chinese history as America shuts off from the world: �Թϱ�� expert Christopher.Sorensen Fri, 07/06/2018 - 00:00

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There are parallels in Chinese history to U.S. President Donald Trump’s isolationism (Photo by Mark Wilson/Getty Images)

Topic

Those who have studied history understand the importance of being engaged in the global economy.

Two thousand years ago, China represented nearly 25 per cent of the global economy. In 1600, it was 30 per cent, and a third in 1820. The country was a global powerhouse, to say the least.

There is a famous story from 1792 when King George III’s ambassador led a trade mission to China with a cargo of the latest European technologies to present to the Chinese emperor – telescopes, globes, barometers, lenses, clocks, carriages, and other such things.

Historians report the Chinese emperor said: “There is nothing we lack – we have never set much store on strange or ingenious objects, nor do we want any more of your country’s manufactures,” thus reflecting his insular view.

A complicated set of factors, including weak Chinese leadership, internal conflict and a rejection of Western technology led to China turning inward and missing out on the Industrial Revolution. This left China significantly weakened, and subject to invasion and Western humiliation.

China down and out for more than a century

China’s demise in the 1800s lasted for more than 100 years. It was not until the 1978 Chinese Communist Party reforms under Deng Xiaoping that China re-emerged, allowing it access to Western markets and technology, thus providing economic growth and prosperity for the Chinese people.

Today, on a PPP (purchasing power parity) basis, China is the largest economy in the world – as it was 200 years ago.

People monitor stock prices in Beijing in June 2018. China is back as a global economic powerhouse after an insular era spent in the shadows (AP Photo/Andy Wong)

Interestingly, China’s growth was driven by exports in industries that saw the most significant liberalization. Going forward, China’s growth will likely slow as it will need to increasingly compete in industries in which there is much more protection.

This experience provides clear lessons for the United States.

The U.S. has been the world’s largest economy for the past 150 years. As journalist and author Fareed Zakaria noted in his 2008 book The Post-American World and the Rise of the Rest, it’s now a post-American era, where the U.S. is not falling, but other countries are closing the gap.

But Zakaria’s book was published before the rise of Trump and the insular and protectionist sentiment sweeping America.

Trump rejects access to global economy

The first tangible action of the Trump administration that pushed the U.S. towards an isolationist stance was his rejection of the Trans-Pacific Partnership, a trade agreement that would give the U.S. access to an enormous share of the global economy.

Donald Trump would be wise to heed the lessons of Chinese history as he shuts off the United States from the rest of the world (AP Photo/Manuel Balce Ceneta)

Trump has also ordered a renegotiation of NAFTA, and has imposed tariffs on steel and aluminum imports into the U.S., prompting swift retaliatory action from the Europeans and Canadians. And now there is a very real possibility of a further round of tariffs. An all-out trade war seems increasingly likely, with dangerous economic and political ramifications for the United States and the world economy.

Also, and remarkably amid tensions with North Korea, Trump has also forced more protectionist dimensions into the U.S.’s free-trade agreement with South Korea.

Trump’s views that such agreements allow the rest of the world to benefit at the expense of the U.S. is so very wrong – these are not zero sum agreements. His moves to limit immigration are another dimension in his insular and protectionist vision for the U.S.

Reminiscent of China

Closing the U.S. off to the rest of the world is reminiscent of China more than 200 years ago. Of course, the circumstances are very different and it’s a different age. Nevertheless, leading economies of the world must be fully engaged in the global economy, both economically and politically.

It’s time for Trump and his supporters to understand that it is inconsistent to be a global power and protectionist.

The United States must remain open to trade, investment, immigration and the free flow of ideas. It must remain fully engaged in international institutions such as the United Nations, the International Monetary Fund and the World Bank – being a superpower is about both hard and soft power.

There is a clear contradiction between “make America great again” and closing off from the world. If the U.S. closes itself to the world, its future as a world leader in every way is at significant risk.

Walid Hejazi is an associate professor of international business at the University of Toronto's Rotman School of Management.

This article was originally published on The Conversation. Read the original article.

Donald Trump's misguided aversion to trade deficits: �Թϱ�� expert

Christopher.Sorensen — Thu, 28 Jun 2018 20:16:07 +0000

Donald Trump's misguided aversion to trade deficits: �Թϱ�� expert

Christopher.Sorensen Thu, 06/28/2018 - 16:16

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U.S. President Donald Trump speaks during a groundbreaking ceremony for the $10 billion Foxconn factory complex on June 28 in Mt. Pleasant, Wis. (photo by Scott Olson/Getty Images)

Hoa Trinh

Topic

School of Continuing Studies

Global

United States

If political power grows out of the barrel of a gun, as Mao Zedong once proclaimed, the same can be said about the United States’ trade deficit in general.

In this instance, the gun is American and being wielded by U.S. President Donald Trump, who has a puzzling aversion to trade deficits despite the fact they’ve helped fuel the U.S. economy for decades.

If we were to take a little walk down the memory lane, we all know that the U.S. won the Cold War with the collapse of the Soviet Union. But America paid a price by losing its consumer industrial base and more than 58,000 lives.

Following the Vietnam War, the U.S. expanded its military industrial complex and has since engaged in several military conflicts, big and small.

To understand the connection between war and the trade deficit, we must understand four major historical markers in contemporary American history.

The first is the Vietnam conflict (1954-1975), a proxy war that pitted siblings against each other – North and South Vietnam – and resulted in more than three million deaths on both sides. The north was supported by China and the Soviet Union, and the south was supported by the U.S. and its smaller military allies, notably South Korea and Australia.

A crowd of American soldiers swarm around U.S. President Lyndon Johnson in October 1966 shortly after his arrival at Cam Rahn Bay in South Vietnam visiting troops during the war (photo by AP)

While that was going on, President Lyndon Johnson in 1964 waged a very costly second front at home – the Great Society program aimed at ending poverty, reducing crime, abolishing inequality and improving the environment.

Not to be outdone, President Ronald Reagan’s 1981 tax cut partly contributed to recharging the American economy in the midst of a recession, but it also created massive government deficits.

But the most important historical event of the four is the fact that America abandoned what’s known as the Gold Standard in 1933. The policy banned creditors from demanding payments in gold. It then fixed the exchange rate between gold and the dollar at US$20.67 per ounce, and then increased it to $35 per ounce.

In 1971, President Richard Nixon announced that the U.S. would no longer convert dollars to gold at a fixed rate of $35 per ounce. And that freed the U.S. government to issue more money. And issue they did.

In this February 1972 photo, Chinese communist party leader Mao Zedong is seen with U.S. President Richard Nixon in Beijing (photo by AP)

Connecting the dots among these four historical events requires examining them through the prism of three American undertakings – winning the Cold War from a defence perspective, increasing civilian consumption and finding a way to finance the two.

The U.S. opted to take care of its defence requirements domestically in order to protect, strengthen and sustain its vast military industrial complex.

Outsourcing manufacturing to Asia

To spur consumption, the Americans found it more efficient to outsource a significant part of that task to its allies, notably Japan and other Asian Tigers at the time (Taiwan, Singapore, Hong Kong, South Korea) and, later on, China, among others.

The U.S. outsourced a lot of manufacturing to Asian countries, including China in recent years, to spur consumption and spending domestically (photo via Shutterstock)

This marked the beginning of a prolonged track of American trade deficits.

The remaining task was to find a way to finance these two enterprises. In normal circumstances, a country can run trade deficits for a while, and if it continues, the price of its currency must go down.

The country buying goods from other nations must sell its own currency in order to buy the currencies of the countries from where it imports, or to buy U.S. dollars to pay for those goods since the American greenback is considered a secure global currency.

This cannot go on for very long before the local currency collapses in value as a basic consequence of supply and demand. But it’s different for the U.S. – the American dollars at home are the same dollars needed to pay for imports, and the U.S. simply supplies more of them when needed.

Because countries buy U.S. dollars to trade their goods, the ones that earned money thanks to American outsourcing reinvested their dollars back into the U.S. in financial and other investments.

Oil-producing countries in the Middle East, for example, do that by reinvesting their U.S. dollars from selling oil back to the U.S. and via American dollar-denominated investments elsewhere.

The Japanese do so as well, and did so massively in the heyday of the Rising Sun, and the Chinese have been doing the same with their trade surplus with the U.S..

The dollar remains strong

Today, the two biggest sources of U.S. foreign debt are recycled dollars from the Chinese and Japanese. The shrinking of the American consumer industrial base has been offset by this incredible expansion of its financial industry thanks in part to China and Japan investments.

In short, U.S. consumers acquire many of their goods from these countries. These importing nations then invest the money made from selling those goods to the Americans into U.S. treasury bills and bonds, which helps fuel the American economy.

But the real question is why do these countries have such confidence and trust in the U.S. dollar?

The answer: America has a secure geography with two big oceans on the east and the west that form a natural security barrier. A friendly Canada lies to the north and relatively weak countries lie to the south. Geographically, the U.S. is secure, militarily it is the strongest, and economically it is among the most capitalistic countries.

And so given Americans have had it so good for so long, why is Trump complaining about trade deficits? Trade deficits, after all, have allowed Americans to consume and spend more, to save less, to grow American company profits, and to save itself from having to endure additional and enormous environmental damages due to manufacturing and production.

America’s real deficit

A final point that’s often lost in trade deficit debates: In terms of accounting, America’s trade deficit with China is China’s trade surplus. But much of China’s trade surplus with the U.S. is owned by American companies given so many Chinese goods contain components from U.S. firms, including Apple, and are simply assembled in China.

By one estimation, the U.S. trade deficit with China last year was 36 per cent lower than commonly reported when all factors are taken into account.

And so America’s trade “war” with China will hurt the sectors in which the U.S. is doing relatively well – in semiconductors (a crucial component in electronic products), commercial aircraft, automobiles and products within the food and energy supply chains.

And it will eventually cause hardships for low-income Americans who must buy everyday household consumer goods. In China, low-income Chinese will also be hurt the most by higher food and energy costs.

The U.S. recently announced tariffs on 1,102 Chinese products. China promptly retaliated by announcing tariffs on 659 American imports, including soybeans and automobiles. Trump fired back, using a bigger gun, by asking his administration to identify an additional $200 billion worth of Chinese products for a 10 per cent tariff.

If nothing changes in the interim, the announced measures will come into effect soon.

If Americans truly want to reduce the trade deficit and increase real income in the long run, they must increase personal savings, lower government deficits by reining in military spending and perform major surgery on health-care costs.

These changes hold the keys to freeing up necessary resources for rebuilding America's consumer industrial base, its crumbling infrastructure and its decaying public education system.

Low-skill industrial jobs are not going to come back to the U.S.. Even China has slowly started the process of moving some low skill and low value-added jobs elsewhere.

America has an income and opportunity distribution problem, and Trump’s obsession with trade deficits and his subsequent wielding of the tariff big guns, is the wrong approach.

Hoa Trinh is an instructor of business management at the University of Toronto.

This article was originally published on The Conversation. Read the original article.

�Թϱ�� expert on looking beyond NAFTA: Why Canada must find new global markets

noreen.rasbach — Tue, 19 Jun 2018 18:22:52 +0000

�Թϱ�� expert on looking beyond NAFTA: Why Canada must find new global markets noreen.rasbach Tue, 06/19/2018 - 14:22

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Plans for a new bridge between Detroit and Windsor will increase the flow of goods between Canada and the U.S. But Canada’s current trade war with the U.S. means the country should diversify its economy (photo by David Chidley/The Canadian Press)

Walid Hejazi

Topic

United States

Canada’s Senate committee on banking, trade and commerce is undertaking yet another study on Canadian trade, this time looking at the potential impact of the NAFTA renegotiation on the Canadian economy.

In testifying before the committee recently, I argued it’s truly a sad state of affairs that the prosperity of millions of Canadians can be impacted by the decision of one man – U.S. President Donald Trump.

As many have argued for the past 20 years, the Canadian government and businesses must deploy strategies to globalize the Canadian footprint beyond the United States. It’s time to move beyond simple rhetoric and move to action.

Theory and experience tell us that such change is very difficult without a sense of urgency. More importantly, however, implementing the needed change gets more difficult the longer it is delayed.

Preparing for an end to NAFTA

There is now a very real possibility NAFTA could end. While there is tremendous uncertainty on what the economic impact would be, one thing is clear: It’s not good. In contrast, the importance of having a more diversified global footprint is crystal clear.

Had Canada deployed and effectively pursued strategies to deepen its trade and investment relationships with fast-growing emerging markets over the past few decades – instead of its stubborn fixation on the U.S. market – the risk to the prosperity of Canadians would be mitigated.

Both a smaller share of Canada’s trade would be with the United States and, more importantly, the networks would be in place to buffer trade disruptions with the U.S. market. Instead, we have neither.

It’s incumbent upon the Canadian government to focus its efforts on emerging markets, including China, India and elsewhere. At the same time, policies must be created to help Canadian firms access those markets. This involves improving the innovative capacity and productivity of Canadian companies.

Ottawa doesn’t get it

Even in the midst of perhaps the most significant threat to Canadian prosperity in the post-war era, the Canadian government still doesn’t get it. Ottawa’s refusal to allow a deal that would see construction firm Aecon Group Inc. be taken over by a Chinese state-owned company on national security grounds has not helped the case for a potential free trade agreement with the Chinese. The decision sends all the wrong signals.

Prime Minister Justin Trudeau and Chinese President Xi Jinping greet each other at a meeting in Beijing in 2017. The Trudeau government has sent China mixed messages about its willingness to build stronger economic ties (photo by Sean Kilpatrick/The Canadian Press)

The Aecon ruling comes at a time when Canada must deepen its trade and investment ties with China to diversify trade away from the United States. Instead of embracing this opportunity, the Canadian government decided essentially to tell the Chinese that Canada doesn’t trust them. How is Canada going to seriously develop a trade and investment agreement with China with this attitude?

Harper limited Chinese investment

This, of course, is not new. The previous government of Stephen Harper had similar concerns about China – after approving the takeover of Calgary-based Nexen Inc. by China’s CNOOC Ltd. in 2013, it simultaneously announced it would rule out further investments into the energy sector by state-owned enterprises. That policy essentially focused on excluding Chinese investment.

We are well beyond the point where diversifying Canada’s global footprint can be considered urgent. What may be most surprising to Canadians is that in the years to come, this is exactly what will happen – but no longer by choice.

As NAFTA collapses, there will be no choice but to find new markets. Change will be forced upon Canadians with far worse outcomes than had a strategy been deployed well in advance.

The sooner Canada truly realizes the global economy has changed and there are tremendous opportunities beyond the United States, the sooner Canada’s over-dependence on just one increasingly protectionist market will fall.

Regardless of the outcome of the current trade tensions, let’s not remain vulnerable going forward.

Walid Hejazi is an associate professor of international business at �Թϱ��'s Rotman School of Management.

This article was originally published on The Conversation. Read the original article.

NAFTA talks moving ahead is a good sign, say �Թϱ�� experts

ullahnor — Tue, 30 Jan 2018 19:44:43 +0000

NAFTA talks moving ahead is a good sign, say �Թϱ�� experts

ullahnor Tue, 01/30/2018 - 14:44

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Canadian Foreign Affairs Minister Chrystia Freeland at the closing of the NAFTA meetings in Montreal on Monday. The sixth round of talks ended on a positive note (photo by Peter McCabe/AFP/Getty Images)

Noreen Ahmed-Ullah

Topic

Faculty of Arts & Science

Munk School of Global Affairs & Public Policy

Political Science

Faculty of Arts & Science

�Թϱ�� Scarborough

U.S. politics

With NAFTA talks ending on a more positive note than expected this week, �Թϱ�� reached out to our experts on what, if anything, has changed and the challenges ahead for trilateral bargaining.

Grace Skogstad is a professor of political science at �Թϱ�� Scarborough. Walid Hejazi is an associate professor of international business at �Թϱ��'s Rotman School of Management. Robert Bothwell is a professor of international relations and Canadian history at the Faculty of Arts & Science and the Munk School of Global Affairs.

So does this mean there's hope for NAFTA?

Grace Skogstad (left): I do think it's good news that negotiators for all three countries emerged with something positive to say about the talks. Although U.S. Trade Representative Robert Lighthizer said the pace of the talks needed to be accelerated, he nonetheless also said he was committed to moving forward.

Walid Hejazi: The first thing you learn about negotiations, especially with [U.S. President Donald] Trump, is that you have to let the other person know you're willing to walk away. If they think you're not willing to walk away, they'll use that to their advantage. Trump played hardball at the very beginning, asking for things that were outrageous. I think the Canadian and the Mexican side did exactly the right thing, to say, “Look, we are willing to walk away because the deal that Donald Trump proposed would be really bad for Canada.” The Americans have moved really far in signalling that they’re not as anxious to walk away as Trump indicated initially. This is excellent news for the possibility that NAFTA will be sustained.

What changed? Could Trump be willing to take a new approach?

Grace Skogstad: Canada's World Trade Organization challenge of U.S. softwood lumber duties may have some impact, but I think if the U.S. position is indeed changing, it is because of U.S. domestic pressures and developments. U.S. business groups, including American farm groups, and several Republicans support NAFTA. There is a battle going on within the Republican Party between economic nationalists and free traders, and it may be that the free traders are gaining the upper hand.

In addition, President Trump himself may be feeling a bit more secure about his record. He got his tax reform bill through Congress so he now has a big win. As much as Canada would like to take some credit for the negotiations continuing (because of our trade challenge or because we have shown some flexibility on auto content, for example), I think it is likely U.S. developments are more important factors.

Walid Hejazi (right): The Canadians have played this perfectly. Trump knows we're not going to walk away, and we're not going to cave. The United States is Canada's natural trading partner. We do 75 per cent of our trade with the U.S., not because we like Americans, but because from a profit maximizing perspective, that's the best place for companies to go. But at the end of the day, when push comes to shove, we are not going to dissolve as a country if NAFTA collapses. Trade will continue with the U.S. as it did before free trade, and there's lots of other parts of the world that are growing. I think Trump is realizing that he played hardball, and it didn't work. And Canada and other countries are moving forward with trade, while the U.S. is falling behind. I think there's a realization that the impact of protectionism could hurt the U.S. especially as other countries move forward.

What is Canadian Foreign Affairs Minister Chrystia Freeland and Canada up against when negotiating in these talks?

Grace Skogstad: The biggest challenge, and it is undoubtedly a challenge for U.S. negotiators too, is the inconsistency of President Trump's position on NAFTA. One week he tweets that he could be “a little bit flexible” on withdrawing from NAFTA. The next week he tweets that abandoning NAFTA would be "good."

Walid Hejazi: The real threat was the Americans walking away. It's insane to believe that you're going to put something on the table in which the other side loses, and somehow the other side is going to accept that, which is what Trump's argument was before. So that was the biggest thing Canada was up against – a Donald Trump who makes a decision that economically would hurt the U.S. but politically could help him. But it seems that now that they're allowing the negotiations to go forward, which means that Donald Trump has walked away from that. So, I would call this a victory for Canada. The fact that the American belligerence in these negotiations has been somewhat diminished, the fact that they're allowing the negotiations to go on, shows that the Americans are walking away from the madman strategy.

Have they agreed on anything so far? What is left to resolve?

Grace Skogstad: The media report progress on so called “new issues,” such as digital trade, but there remain thorny issues to resolve. They include the percentage of U.S. content in autos, the U.S. objective of automatic termination of NAFTA after five years, and labour standards. There is also the issue of the U.S. seeking greater access to Canada's dairy market. Canada's effort to show flexibility on NAFTA rules of origin with respect to autos was rebuffed by Lighthizer. I think Canada can't and won't agree to the U.S. objective of eliminating the dispute resolution mechanism. Canada and Mexico are proposing a review of NAFTA every five years, rather than an automatic sunset clause. Agreeing to greater U.S. access to Canada's dairy market may be politically problematic since Canada has already conceded more market share to the EU, under the Comprehensive Economic and Trade Agreement, and the newly signed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, also known as the revised TPP or TPP11).

Robert Bothwell (left): Less publicized areas – those that Trump and Lighthizer have not publicly pronounced on – do seem to have shown progress. We know that Trump does not have a head for details, and the more detailed, the less likely to be subjected to his interference.

How could the newly signed and revised TPP impact NAFTA negotiations for the auto sector?

Walid Hejazi: When you bring in the TPP, that's creating a new economic bloc that will be much more integrated and much more efficient, which means a lot of companies that may have located within the U.S. are not going to locate in the TPP region like Canada. With the TPP, Canada looks more attractive because now if you locate in Canada, you can get access to trade with all of the TPP countries. The TPP has been good for Canada but bad for the American bargaining position.

Are Canadians prepared for the U.S. to walk away from NAFTA? What would happen to Canada, its economy, specific industries (auto, dairy) if NAFTA fails?

Grace Skogstad: We have no alternative but to take President Trump's threat seriously. Canada, and in particular, Ontario, would take an economic hit if NAFTA fails. Experts disagree on how big the hit would be, but the governor of the Bank of Canada has stated that we cannot assume it will be “a small shock.”

In the 25 years since NAFTA was signed, Canada has also gained access to other markets through the World Trade Organization, and more recently to the EU. The CPTPP will open up other markets. Even if we cannot replace the U.S. market overnight, I think Canada has taken some important steps to reduce its future dependence on the U.S. market.

Robert Bothwell: There would be considerable pain if the disruption were immediate. More likely the unwinding would be gradual. There is a slight possibility that we would revert to the old free trade agreement that was superseded by NAFTA. Or we could revert to the basic World Trade Organization agreement, which would temper the impact. If Trump denounces that too then the disruption would be serious for a number of years.

For autos, there would obviously be damage, and the result would be to disadvantage those companies who have well-established supply chains. As for dairy, the dairy farmers would weep tears of joy that the threat to supply management – a major U.S. target – has been averted. Are we (Canada, the industries) prepared for that alternative? I cannot say. It has been 83 years since we confronted the U.S. in any kind of trade war. It would be an unfamiliar experience, but, as a historian, I have to say we survived 70 years of U.S. hostility or indifference from 1866 to 1935.

If I read the comments from Canadians in today’s New York Times correctly, there is a feeling that we should not let ourselves be bullied. That is especially the case with Trump, who is more unpopular in Canada than even George W. Bush.

Trudeau meets Trump: �Թϱ�� experts on what's at stake for Canada

ullahnor — Mon, 13 Feb 2017 21:36:11 +0000

Trudeau meets Trump: �Թϱ�� experts on what's at stake for Canada

ullahnor Mon, 02/13/2017 - 16:36

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Canadian Prime Minister Justin Trudeau met with U.S. President Donald Trump at the White House today (photo by Mark Wilson/Getty Images)

Topic

University of Toronto experts spoke with reporters ahead of Prime Minister Justin Trudeau's meeting with U.S. President Donald Trump today, discussing the Canada-U.S. relationship.

Irvin Studin, editor of the Canadian foreign policy magazine Global Brief and a researcher at U of T's School of Public Policy & Governance, said in a CBC Radio interview that Canada has been stuck in America's shadow for too long, and it's now time for us to think for ourselves.

“We're going to have to take some decisions,” Studin said on CBC's The 180. “Some of them will be aligned with American decision-making, but it will be very unsentimentally in our national interest. In the short term, whereas the Americans have been picking off Canadian talent, consciously and unconsciously over the last 70 years, now is an opportunity for us to do the reverse.

“We must be very unsentimental about it. We should be picking off American talent across the sectors. In sciences, in culture, in business, and everything in between. This is an opportunity for Canada to create some of the strategic bulwark to think for itself.”

While we don't share a border with Latin America like the United States, we do share borders with China and Russia, Studin said.

“Another way of looking at it is these are Great Powers at our borders this century, and they're going to squeeze us if we don't bulk up and think for ourselves,” he said.

The big box effect: �Թϱ�� research finds ‘supermarket revolution’ in Mexico cut down cost of living

ullahnor — Tue, 17 Jan 2017 15:05:07 +0000

The big box effect: �Թϱ�� research finds ‘supermarket revolution’ in Mexico cut down cost of living

ullahnor Tue, 01/17/2017 - 10:05

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In Mexico, the influx of foreign retailers sparked a “supermarket revolution” since NAFTA was ratified in the mid-1990s (photo by Clark Young via Unsplash)

Don Campbell

Author legacy

Don Campbell

Topic

The entry of foreign retailers into developing countries can improve household welfare by reducing the cost of living, new research from the University of Toronto has found.

The study by Marco Gonzalez-Navarro, an assistant professor of management at �Թϱ�� Scarborough, finds that on average household welfare in Mexico increased by six per cent after large foreign retailers set up business in their municipalities.

“We looked at an extensive set of gains and losses from foreign retailer entry and found these large retail stores generated substantial welfare gains for households in Mexico,” says Gonzalez-Navarro, whose research focuses on development economics.

Economic welfare is a broad measurement that takes into account things like income, employment, labour conditions, leisure time and productivity. For this study, researchers measured the impact on household welfare by looking at the cost of living, total employment, income and local businesses closing.

Gonzalez-Navarro says the reduction in cost of living came down to two main factors.

For one, there was a direct effect of offering much lower prices for identical products. The authors found that prices were 12 per cent lower at large foreign retailers compared to local retailers. Consumers also benefited from a greater variety of goods offered that were not available previously, as well as shopping amenities including better hygiene and more parking.

Since foreign retailers accounted for 30 per cent of overall household retail expenditures, it translated into a substantial reduction in the cost of living.

The second major factor derived from local retailers cutting prices by an average of 4 per cent following the entry of foreign retailers into the market.

“Prices at local retailers went down in order to compete with larger retailers so even if families didn’t shop at large retailers, they ended up experiencing a lower cost of living,” he says.

The study, co-authored by David Atkin, an assistant professor at MIT, and Benjamin Faber, an assistant professor at UC Berkeley, found that while there were some welfare losses associated to entry, they were relatively small in comparison. For example, in a typical Mexican municipality that was studied there was a 2.6-per-cent reduction in the number of traditional retailers once foreign retailers set up business.

More significantly, they found little empirical evidence to support the often-heard argument that global retailers lead to widespread job losses and lower incomes at the local level when they enter developing countries, says Gonzalez-Navarro.

The influx of foreign retailers sparked a “supermarket revolution” in Mexico since NAFTA was ratified in the mid-1990s. The data used in the study was gathered from 2002 to 2014 during a time when large foreign retailers began setting up in small to mid-size municipalities throughout Mexico. This presented a unique opportunity to study hundreds of experiences with foreign retailer entry across the country.

Gonzalez-Navarro adds that many governments around the world, especially in developing countries, are often reluctant to open their retail sectors to foreign competition over fears that competition will shut down small retailers with India being a prime example.

“They’re understandably nervous because the retail sector comprises a large chunk of employment and they’re unsure about whether many will be able to survive competition. What we see in the case of Mexico is that some small retailers closed, but the effect wasn’t economically significant,” he says.

Gonzalez-Navarro says if governments are willing to take a loss to a very few households that rely on small retailers, the positive gains can be large. He adds that foreign retailers also come with the latest technology and know-how in terms of logistics and global supply chains.

“I think if you were to tell politicians that they could increase household welfare by six per cent without costing them anything in terms of spending, they would jump all over it.”

�Թϱ�� experts on life after Brexit: “This is going to resonate for a very long time”

vzaretski — Wed, 29 Jun 2016 18:06:02 +0000

�Թϱ�� experts on life after Brexit: “This is going to resonate for a very long time”

vzaretski Wed, 06/29/2016 - 14:06

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Mary Turner / Stringer via Getty Images

Veronica Zaretski

Author legacy

Veronica Zaretski

Topic

�Թϱ�� Scarborough

UTSC

Political Science

Subheadline

“Xenophobia is a major concern”

The Brexit referendum shocked everyone last week, from politicians and experts to the general public. �Թϱ�� covered responses from political scientists shortly after the vote was announced. Read more coverage of Brexit on �Թϱ��.

Members of the EU are now bracing themselves for the break, and the economic and political ripple effects of Brexit will be a top issue today when North American leaders meet at the so-called Three Amigos summit.

�Թϱ�� experts Carolina de Miguel Moyer and Phil Triadafilopoulos shared their thoughts on the responses to the British referendum vote and what it means for the future of Europe and North America.

Assistant Professor Carolina de Miguel Moyer is an expert on European and EU politics, electoral behaviour and political party systems. She spoke to �Թϱ�� about rising global trends and says that the national is championed over the global.

On populism and nationalism in Europe and North America

Brexit is not only a British or a European issue, it’s a broader global issue. It is important to remember that not so long ago Europe was torn apart by one of the bloodiest conflicts in history. The EU’s importance lies not only in its economic accomplishments, but in the ability to bring peace to Europe. The success of the European project should be in the interest of our global community, and Brexit undermines to some extent the legitimacy of this project.

There is also a global economic angle to Brexit, which is that it signals a trend towards nationalism and protectionism across the globe. The national is being championed over the global, not only in the UK and but also in other European countries, and in the US.

Finally, xenophobia is a major concern linked to these nationalistic and protectionist discourses, which we see on the rise in France, the Netherlands, Italy as well as many Eastern European countries (and the US). These movements in Europe are often linked to Euroskeptic views, similar to those of the leave campaign in the UK, and they seem to have gathered renewed strength after Brexit. We’ll see if there is a domino effect from Brexit when we see the result of upcoming national level elections in the continent. The rise of these parties and movements could make it especially difficult for the European Union to effectively deal with its two other most pressing crises: the Greek crisis and the migrant crisis.

On the Three Amigos summit

The issue of Brexit is certainly going to be on the summit’s agenda, and we will probably see the leaders of the summit respond to the outcome of the referendum with pro-trade liberalization discourses and an agenda to strengthen co-operation in a variety of domains. The leaders of the summit – Obama, Trudeau and Pena Nieto – recognize that we are at a moment in history where protectionist forces are on the rise, so they have an interest in consolidating what already has been accomplished with NAFTA and the TTP. I think they would like to keep the momentum going for these agreements, and prevent any future political tides from reversing them (especially coming from the US).

On the upcoming U.S. election

In the US, the presidential candidates have reacted to Brexit and Clinton has started to take the outcome very seriously since a similar nationalist and protectionist discourse is already part of Trump’s campaign. A certain sector of the working class in the US might find some affinity with this kind of discourse, and Clinton will have to find a way to address and counteract that. In the campaign for example, Hillary Clinton has shown some reservations for the recent TTP agreement, and we might see more of this protectionist talk as we move forward.

On Scotland and Ireland

Regarding Scotland, Brexit has the potential to re-ignite secessionist forces, and there are talks about a second referendum for independence. However, the conversation is also turning into an exploration of the ways in which Scotland might stay within the UK and the EU at the same time even if other parts of the UK are not in the EU. The precedent is Greenland. However, this is a complicated option for Scotland because it would require the rest of the UK (England, Wales and Northern Ireland) to agree that Scotland stay in the EU while they don't, and it would also require that all other EU countries agree to it as well. This might be doubtful in the case of countries with secessionist movements within, such as Spain.

Phil Triadafilopoulos is an associate professor of political science at �Թϱ�� Scarborough and the School of Public Policy and Governance. “Anyone who says they have a clear picture of what could happen after the Brexit is lying,” Triadafilopoulos said. All of the pieces are still moving, he told �Թϱ��, as he shared insights about the role of immigration and economic discontent in the referendum.

On the role of xenophobia in politics

In the election in Canada, although all three political parties were ultimately pro-immigration, we had some debate over who can be a citizen and who can’t. We also saw the issue of the head scarf in citizenship ceremonies become highly politicized.

The conservatives were pro-immigration, but they played the identity card and were anti-Islam, and that backfired against them. When people hear about the rights of some dual citizens being taken away, other dual citizens also get worried.

In Canada, anti-immigration, anti-Islam and xenophobic sentiments were punished in the ballot box. But in the United States they have helped the presumptive Republican nominee Donald Trump. Trump made immigration one of the central parts of his campaign platform and will likely continue to do so moving forward.

In Britain, in the last part of the campaign, the “Leave” side played up immigration concerns. Some of the surge in support for the Leave side was likely due to making immigration the central plank in its campaign. Certainly some of the rhetoric and materials in the campaign were blatantly anti-immigration.

On why populism is on the rise

The changes in the economy of Canada, the United States and Britain have been profound. People who had jobs in the manufacturing sector, and who could previously rely on their unions to deliver reasonably good benefit packages saw that economy slip away.

The hollowing out of the manufacturing sector has created a situation where politicians can exploit discontent – discontent that is justifiable.The mobilization of this discontent has given a boost to populist politicians in Britain and the United States, but it has not been as effective in Canada.

After Brexit

This is going to resonate for a very long time. How will Britain act on the vote and who will act on Britain’s behalf? When will they invoke article 50 to begin the process of exiting the European Union? How will they use this opportunity to negotiate new terms with the European Union? Will Scotland use this opportunity to work towards a new independence referendum? How will the EU deal with the refugee crisis and the ongoing crisis in Greece?

Europe is not in the greatest of positions to deal with these very profound challenges. The pound has taken a beating too and that’s not likely to improve quickly. In the long run we’re not sure what the Brexit vote is going to mean. For instance, multinational companies currently based in London might decide to relocate to Dublin or Frankfurt. That would be great for Ireland and Germany, but not for Britain.

It’s possible that the EU might come out of this stronger, because Britain made it difficult to be more cohesive, and was always a thorn in the side of pro-integration forces. But it might also mark the end of serious attempts at political integration or even contribute to the longer run dissolution of the EU. We just don’t know.

Business mission to Israel shows Ontario serious about innovation, says �Թϱ�� expert

lavende4 — Mon, 30 May 2016 13:48:04 +0000

Business mission to Israel shows Ontario serious about innovation, says �Թϱ�� expert lavende4 Mon, 05/30/2016 - 09:48

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Ontario premier Kathleen Wynne setting out on the business mission to Israel (photo courtesy Government of Ontario)

Terry Lavender

Author legacy

Terry Lavender

Topic

Munk School of Global Affairs & Public Policy

Israel

Innovation

Ontario premier Kathleen Wynne returned May 19 from a five-day business mission to Israel that emphasized innovation, research and development and resulted in 44 new agreements valued at more than $180 million.

Wynne was accompanied by representatives of Ontario’s business, health and higher education communities – including the University of Toronto. �Թϱ�� spoke to Dan Breznitz, co-director of the Innovation Policy Lab at the Munk School of Global Affairs and chair of Innovation Studies, about the business mission.

[embed_content nid=14194 (class="additional class")/]

What purpose does a high profile, multi-participant trade mission like this one serve?

We need to put visits like this in perspective. Their main aim should be to finalize deals that have already been decided, open a few channels for future consideration by meeting face to face and establishing more personal networks between the two sides. However the real goal of these missions is political and declarative, showing the interest in making these collaborations work at the highest levels

Could the same results be achieved in other ways? Are such missions necessary?

Some of these missions are necessary at certain time points. However, to be honest, most of the work needs to be done through constant effort from both sides over several months and years. The real benefits from these relationships take years to fruit to completion

Can Ontario expect tangible benefits from this mission?

Like all of these missions this should be seen as a process, the tangible benefits might be a few agreements signed which otherwise would have taken months or even years to be completed. Ontario has lot to learn from Israel, and Israel can learn a lot from Ontario since our economies are very complementary and there is a lot of good will on both sides.

However, what might be the most important thing that Ontario can gain from this relationship is if we learn not how to copy Israel’s innovation policy, but learn how to devise our own. Israel has been a true pioneer since the early 1970s in effective innovation policy, if we can learn not what the policy has been, but how to approach the subject so we can quickly devise, experiment scale-up policies that work and close these that do not, that would be a most valuable lesson, and would make this trip a truly unique success.

Kathleen Wynne writes that the visit will “help establish Ontario as a top innovation and knowledge economy partner and investment destination.” Is this a realistic expectation?

The visit does indeed signal that the premier is serious about innovation and innovation-based growth, if, and only if, this would be followed with sustained efforts, experimental and creative policies, and true engagement with Ontarians then we can look back at this visit and see it as a turning point. But getting to be a globally leading hub of innovation-based economy needs time, patience and serious investment in terms of correct policies and resources. Israel started this process in 1968 and it took more than 20 years for the country to become a leading innovation hub. There is no cutting corners in this process and we should all hope that the premier will keep on pushing the agenda and ensure that it continues even after she leaves office.

�Թϱ�� and other universities have participants in the delegation. What benefits do Ontario universities gain from the mission?

Israeli universities are not only global leaders in terms of academic excellence but also in terms of technology transfer and entrepreneurial education. We can only hope that this mission would lead to deepening the already very deep, relationships between Ontario’s universities and Israel’s top universities.

Not too late to mitigate TPP effects, Minister of International Trade Chrystia Freeland told

sgupta — Tue, 19 Jan 2016 10:07:35 +0000

Not too late to mitigate TPP effects, Minister of International Trade Chrystia Freeland told sgupta Tue, 01/19/2016 - 05:07

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“I felt I needed to be informed by the academic community’s thinking on trade issues,” Chrystia Freeland said (all photos by Arnold Lan)

Terry Lavender

Author legacy

Terry Lavender

Topic