As I listened to Prime Minister Paul Martin pump up the anti-American rhetoric another notch in the softwood lumber dispute, it dawned on me how trapped he and many Canadians are in a totally outdated way of thinking about our economic relations with the United States.
Many people still think we have a “trading relationship” with the US. They thus think in terms of closed national economies that produce finished products they then sell to businesses and consumers in other countries. Just as the French, say, grow grapes, harvest them, turn them into wine, put that wine in bottles and then sell it to consumers in other countries around the world.
But that’s exactly the kind of relationship we do not have with the US. As Professor Stephen Blank of New York’s Pace University, and a visionary about the North American economy, likes to say, Canadians don’t make cars and sell them to Americans. Nor do Americans make cars and sell them to Canadians. We, Canadians and Americans (and increasingly Mexicans), make cars together.
A car at various stages of production may cross the border as many as four or five or more times, because the border doesn’t exist in the eyes of the auto industry. Continental and even global companies are moving production around North America, with each highly specialized plant performing some job it does better than others. Often these different processes take place within a single company, like GM or Toyota, even though the actual production processes may be spread from Ontario to Michigan, Ohio and Pennsylvania.
That’s why what looks like huge two-way trade in “automobiles” between our two countries merely counts the value of various stages of production as they flit back and forth between our two countries. This is not a trade we could “cut off” to the Americans, in the way that the French could stop selling wine to Argentina. We are part of a large integrated continental economy; we are not in charge of a “national” Canadian economy that is divided from a “national” American economy at the border.
And this is not only true about automobiles. The continent has, for all intents and purposes an integrated electricity system (why do you think the great blackout two years ago cut such a swathe through both countries?), just as oil and gas is traded back and forth according to geography and sources of supply. CN is one of the new continent-wide transport companies helping Canadians, Americans and Mexicans move their goods quickly around our common economic space. Everywhere you look, the ties that bind us economically are deepening.
All of this integration was underway before the Free Trade Agreement and its successor, NAFTA – all that happened was the FTA gave it incomplete written rules, created an imperfect way to resolve disputes and removed some of the obstacles to its fuller development, like tariffs.
Ironically this level of cross-border integration doesn’t leave us uniquely vulnerable to American pressure. Rather it means that America is also deeply woven into the fabric of continental life. As Professor Blank has said, “the idea that ‘security trumps trade’ is dead wrong. How could there be security in the economic chaos that would result from locking down our borders with Mexico and Canada? Trying to force our production system back inside national borders would be economically devastating, and the impact on Mexico and Canada would scarcely make anyone more secure.”
So while we remain fixated on softwood lumber, a minor trade irritant affecting the equivalent of a few days’ cross-border trade each year, the real challenges in our relations with the United States arise from our limited imaginations. We all insist on seeing the NAFTA relationship as three sovereign countries managing three national economies trading raw materials and finished goods with each other, whereas in reality we all inhabit a single integrated continental economy. That economy just happens to fall under the jurisdiction of different national governments in different corners of North America.
The chief problem with NAFTA is not that the US Congress refused to give up its right to make trade law that conflicts with America’s treaty obligations. It is rather that NAFTA creates no institutions by which we can push the logic of joint economic management further, benefiting consumers through greater choice, workers through higher wages, and all of us through higher productivity, which is the cornerstone of higher standards of living.
Just as we already have a treaty that allows us to manage common border waters, we need tools to allow us to manage other common problems like poor cross-border infrastructure, unco-ordinated transport policies, and energy investment. It is in Canada’s national interest to keep the momentum of deepening integration moving forward, because it is only by making continental integration synonymous with America’s well-being that Canada will be able to protect its own.
Brian Lee Crowley is president of the Atlantic Institute for Market Studies (www.aims.ca), a public policy think tank in Halifax. E-mail: BrianLeeCrowley@AIMS.ca