Perspective On Trade Agreements
“I love trade. I’m a free trader, 100 percent. But we need smart people making the deals, and we don’t have smart people making the deals.” - Donald Trump, US President Elect
The recent US Presidential campaign, which was followed more closely worldwide than any in history, provided one very important benefit. For both Americans and Canadians, it elevated awareness of the North American Free Trade Agreement (NAFTA), and pending agreements such as the Canadian-European Union Comprehensive Economic and Trade Agreement (CETA), and the Trans-Pacific Partnership (TPP).
The main justification given for pursuing a major open trade deal is that “it will provide access to a market with hundreds of millions of people”. The reality for US and Canadian companies is that in practice significant access is seldom realized. We should have learned this lesson forty years ago from trade relations with Japan. Although they were very successful in selling to us, North American products were kept out of Japan even though we had free trade. A corporate leader back then said “they are plucking us like chickens”. Today, China quite effectively avoids buying innovative North American goods and services, even if they are made in China. Freer trade agreements Canada and the US may have in the future with China are doomed to be even more one way. In the case of EU countries, my experience is that they prefer to use EU vendors. A deal like CETA won’t change that, but it will make it easier for EU vendors to sell their competing products and services in Canada.
In past and present negotiations of trade deals, have government officials rationally assessed the value of these agreements in terms of effect on the national economy and employment levels? They appear to be driven by ideology or a desire to “do something” on trade rather than focus on what really happens when we agree to “open borders on trade”
It is not at all surprising that trade agreements accelerated the massive closure and shift of North American manufacturing plants to countries with lower labour costs. What has happened since is the quite predictable, business-driven, flow and evolution in the job market. China is no longer interested in the low skill jobs transferred to them. Those jobs now flow to lower cost countries such as Viet Nam and Cambodia.
For sound business and economic reasons, Chinese companies are actually moving some of these jobs back to the US. In 2013, Chinese companies invested over $14 billion to set up new manufacturing operations in the US, creating almost 80,000 jobs. These new plants are going into areas with a low cost labour force, often where high unemployment was created when US companies shifted production to China. The new jobs created by Chinese investment do not begin to replace the millions of lost low skill, middle class, NA manufacturing jobs. US manufacturing output, on the other hand, driven by innovation, has increased in volume and dollar value despite the smaller work force.
Innovation is a preferred driver for export, because products and technology-based services that people want to buy have natural and legal barriers to competition, and do not require assistance from free trade agreements. This is particularly true in the health care economy, which thrives on breakthrough inventions. Canada has a history of encouraging and supporting innovation. We also have an enviable level of global trust. If we focus on the development of innovative products, we will be rewarded with high value economic growth and new jobs.
The US and Canada make great partners in a broad free trade agreement. We share common values, language, and culture. We have business environments free of corruption. We believe international trade is built on trust and true reciprocity, and we have a history of innovation creating products we want and need. While free trade with Mexico has been good for global businesses and for Mexican workers, NAFTA has been disastrous for millions of American and Canadian workers. In the TPP, more than half of the countries involved have different values, and they will gain manufacturing jobs at our expense.
Our current trade deals provide great benefit to developing countries and global enterprises, but adversely affect our workers. Critics suggest we should seek “fair trade” rather than “free trade”. Either we seek practical agreements that serve the best interests of all Canadians, or declare that our trade deals support global businesses and that the transfer of jobs out of Canada is proof of our desire to help raise the standard of living for everyone else.
“There are downsides to everything; there are unintended consequences to everything.” - Steve Jobs, Co-founder of Apple Inc.
Writen By:
Peter Pekos
President and CEO
Dalton Pharma Services