To pull away from the U.S. economy, Canada must look to its immigrants

May 2, 2017

By Frances Woolley, Globe and Mail |

Trade ties are like gravity. They are strongest when economies are large and close. Canadian goods and services are pulled south by the size and proximity of the American economy. But if U.S. protectionist rumblings turn into serious trade barriers, Canadians will need to find someone else to trade with – defying gravity – if we are to avoid economic catastrophe.

Canada’s previous attempts to defy gravity have failed. Yet, the Canada of today is not the Canada of the past. Every generation of immigrants brings new skills and connections, infusing Canada with fresh human and social capital – 150 years ago, immigrants built Canada’s railroads; 100 years ago, they opened the prairies. Fifty years ago, Canada introduced the point system, and started welcoming highly educated immigrants from across the globe. Today, those immigrants, and their children, could change Canada’s economic ties with the rest of the world.

The economic tensions Canada and the United States are experiencing today are not new. The 1920s also saw profound technological change and economic displacement. Electrification caused productivity to soar. Then, as now, real wages failed to keep up. Firms were able to produce goods in unprecedented volumes, but consumers lacked the purchasing power to buy them.

In the United States, economic pressures compounded with toxic politics and bad policy politics led to the 1930 Smoot-Hawley Tariff Act, which attempted to prevent goods from being imported into the United States by imposing sweeping, extreme tariffs.

It was a disaster for Canada. In three years, from July, 1929, to July, 1932, Canadian exports to the United States fell by two-thirds. The R.B. Bennett government responded by trying to revive Imperial trade ties. At a 1932 meeting in Canada’s capital – the Ottawa Conference – the self-governing countries in the British Empire negotiated a series of bilateral tariff-reduction agreements, with the aim of reinvigorating their economies with intra-Empire trade.

It didn’t work. Simon Fraser University economist David Jacks has studied the Ottawa Conference. He concludes it was a failure from the Canadian perspective. Current research in trade theory suggests one possible reason why.

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