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Trade Policy of Trading Places?

December 19, 2013

Published in Embassy Magazine

by Pablo Heidrich

The Canadian government’s announcement of a new international trade strategy, the Global Markets Action Plan, has garnered predictable criticism and support. Reactions have ranged from fears that Canada should become a wandering salesperson, to great enthusiasm for a long-awaited return to common sense when it comes to this country’s foreign relations.

The 16-page plan hinges on a redirection of all diplomatic assets in support of Canadian business abroad. It’s a plan that aligns nicely with Canada’s approach to global issues today, which at best can be considered diplomatically detached. Where we were once intending to be leaders on the international stage, Canada now prefers to stick with clear-cut political sound bites, as seen with Israel, Iran, Venezuela, and religious freedom or LGBT rights.

True to traditional conservative values, the action plan sees international trade as the great engine to drive Canadian economic growth. International development funds will likely be redirected away from the world’s poorest and from supporting Canada’s diplomatic reputation, to countries where Canadian firms have commercial interests. We have seen this in the Canadian government’s financial support of corporate social responsibility initiatives of Canadian mining investors in Latin America and Africa for example.

What Trade Minister Ed Fast undoubtedly has in mind is a future where Canadian diplomacy will use trade and investment promotion as the compass for establishing other relations with the rest of the world. This is a fundamental change but not the main issue.

Poor return on investment

What we ought to concentrate on is: if this plan is fully rolled out, we will see all of Canada’s diplomatic assets, billions of public dollars and hundreds of officials, redirected from political diplomacy and development to trade and investment promotion. This makes the initiative a costly one that requires careful assessment.

Given Canada’s tradeable economy, the plan looks to have a rather poor return on investment.

The main issue here is that Canada is primarily an exporter of natural resources. A full half of 2012 exports were oil, gas, minerals, cereals and wood. Those goods require no significant trade diplomacy in the current global climate of high commodity prices. Nobody is crazy enough to put tariffs or impediments on imports of already expensive commodities. Emerging markets are concerned with imported inflation, and industrialized countries fear something worse, stagflation. Thus, Canada’s main exports sell themselves.

The country is however challenged by the long-term instability volatile commodity prices bring to all economies hooked on exporting oil and minerals, as well as being faced with the twin difficulties of controlling unsustainable environmental damage and ballooning inequality stemming from that pattern of economic growth.

But then that is not trade promotion; it is economic policy, which is where Canada really needs a debate.

For the Global Markets Action Plan to be successful, the government would need substantial influence over private firms via financing programs, controls on labour, a purchasing role and even pricing controls on key inputs.

If this reminds you of a certain country, you’re right. State influence on firms is the necessary condition for China’s model of commercial diplomacy, which is what we are emulating here with this action plan. China Inc. does foster its exports extremely efficiently, often marshalling its political and development diplomacy for that purpose.

But it succeeds because its firms do what the government tells them to do thanks to those state controls on credit, labour, purchases and prices. Does the Canadian state have any similar powers? If not, then export promotion policies and targets as devised recently are beyond our domestic state capacity because Canada just isn’t China.

Help the have-nots instead

Finally, having Canadian foreign policy based on export promotion as defined in the Global Markets Action Plan is problematic because already successful sectors will benefit the most and not the industries that are underperforming in the global economy.

If Canada wants a more balanced and sustainable path of growth through exports, it should be concentrating on promoting struggling—yet important—sectors such as the pulp and paper industry, auto parts, telecommunications technology (Blackberry et al) and so on, and not on our export stars: the extractive industries and finance.

The only rationale for promoting already successful sectors would be if Canada had strong enough domestic policies to ensure that the rest of the country also reaped long-term benefits as well. But, again, it does not have those economic policies in place yet.

The Global Markets Action Plan might well be a pre-election trial balloon with its provocative but undercooked approach to trade competitiveness. As it stands, it provides costly short-term benefits for a select few but doesn’t respond to Canada’s larger economic challenges.

If it isn’t a pre-election ploy, the true application of this plan foretells a drastic transformation of our diplomacy and aid that could only succeed at its new mission if there was a dramatic increase in state economic intervention to facilitate the triumphs of Canadian firms abroad.

In either of these cases, pre-election ploy or truly-meant strategy, the plan seems costly and misplaced.

As the saying goes, back to the drawing board!

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