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Canada-U.S. trade relations: What’s next for the pivotal partnership?

by Laura Dawson

The Globe and Mail
April 26, 2015

Despite some bumps, Canada-U.S. economic relations are looking up. Even as deals like the Canada-India free-trade agreement and Trans-Pacific Partnership grab the headlines, the real bedrock of the economy rests on our trade with the United States.

Canada’s economic trade fortunes are not unlike an unpredictable high-wire act. As Nik Wallenda prepared to cross Niagara Falls on a tightrope in 2012, he purportedly offered, “I’m facing Niagara Falls – the wind and the mist and the dark and the peregrine falcons – and I’m going to stay focused on the other side.”

Canada exports more to the United States in three days than it sells to India in a whole year. We need to keep our eye on the real prize.

As a mature, integrated economy, the advances that we make in our trade relationship tend to be at the margins, but these marginal gains mean a lot. The U.S. economic recovery is pushing demand for Canadian products. Goods exports to the United States are up 36 per cent from 2010 to more than $400-billion in 2014. Services exports have increased by nearly 20 per cent during the same period to more than $51-billion. The importance of the U.S. economy to Canada is clear.

What is less appreciated is the importance of Canadian trade to the United States. The United States exports more goods to Canada than to China, Japan, South Korea and Singapore combined and Canada is the top trading partner of 35 U.S. states.

A 2014 study by Australian economists Peter Dixon and Maureen Rimmer examined both the direct and spinoff benefits of trade with Canada. They found that Canadian trade supports more than eight million U.S. jobs, contributes about 6.5 per cent to U.S. gross domestic product and generates nearly a quarter of U.S. total exports.

U.S. states that are closest to the border have that most to gain from trade with Canada. In the Great Lakes states, nearly 2.3 million American jobs depend on trade with Canada or employment in Canadian affiliate companies.

Great Lakes trade is measured in centuries, not years, but despite well-established supply chains, there is still room for improvement. It is estimated that border and regulatory delays add about 5 per cent to the final cost of a product, making our exports to each other more expensive and making North America less competitive compared with Europe and Asia.

Next week, academic, political and business leaders will meet at the Council of the Great Lakes Region Economic Forum in Chicago to look at ways to make the region more competitive. The issues range from ways to reduce regulatory barriers to improving public-private partnerships in infrastructure.

Unlike new trade agreements with emerging markets in which benefits flow easily from reductions in national tariff rates, improvements to Great Lakes trade will require close co-operation at the provincial, state and even municipal level. These are new players in international trade, but their participation is critical if we are to keep up with competitors from emerging markets. Now, especially as national attentions turn to federal elections in Canada and the United States, economic progress depends on closer co-operation between states and provinces. Beginning in early 2015, U.S Ambassador Bruce Heyman began reaching out directly to state governors, resulting in confirmed visits to Canada by the governors of Michigan, Montana and Kentucky, and many more in progress.

National-level initiatives such as the Regulatory Co-operation Council are helping to provide a road map. Businesses and regulators meet regularly to encourage mutual recognition of rules and processes and reduce unnecessary duplication at the border. We are still a long way from a harmonized system, but since the council began in 2011, we are now much closer to the objective of “inspected once and cleared twice.” However, the regulatory co-operation program only covers federal regulations and many of the areas of trade friction are under state and provincial control.

The national Beyond the Border program launched by Stephen Harper and Barack Obama in 2011 is also producing results. Last month, the two countries announced an agreement that paves the way for preclearance operations at land, rail and marine crossings and promises improvements to the existing airport preclearance arrangements. Also, the NEXUS Trusted Traveller program now has more than a million participants.

The work is painstaking and improvements to cargo inspection seldom makes headlines. Nevertheless, with nearly 300,000 people and $2-billion in goods and services crossing the Canada-United States border every day, there is a very strong case for making the border better.

With oil prices dropping, Canada’s economic future is uncertain, but lower oil prices also contribute to a more competitive exchange rate and cheaper transportation costs, offering new life to Canada’s flagging manufacturing sector.

Border communities in the Great Lakes region have the greatest stake in making the relationship work, but progress requires focused engagement at the local and state-provincial level. New global markets are important, but maintaining and growing the Canada-United States relationship is essential. It’s key that we never forget to stay focused on the other side.

Laura Dawson is president of Dawson Strategic and incoming director of the Canada Institute at the Woodrow Wilson Center in Washington, D.C.

 


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