US and UK Protectionism will benefit Canada, Australia

by Diane Francis

0405autos

The populist U.S. president’s trade war threats against China, Mexico, Germany and others should not be worrisome to Canadians.

Nor should Britain’s foolhardy withdrawal from the European Union worry Canada.

Ironically, both countries’ withdrawal or revision to regional trade systems could prove to be beneficial to Canada’s trading prospects.

By 1946, Canada had become the world’s second biggest automaker and exporter after the United States. The reasons behind this pre-eminence in the past are making a comeback.

Most Canadians and Americans don’t realize that the founders of the Big Three automakers – General Motors, Ford and Chrysler – all had Canadian roots. (The parents of GM’s Will Durant, Walter Chrysler and Henry Ford all immigrated from Canada.)

They turned Detroit into the Silicon Valley of the automobile era and built giants with huge Canadian subsidiaries. They did so in Canada because they understood the country was a member of Britain’s Commonwealth and enjoyed tariff-free trade with its 52 members. The U.S. didn’t have the same advantage.

This meant that their cars — if made and assembled in Canada by their subsidiaries – had access to and could tap into the biggest free trade market on earth.

The result was that, by the 1920s, Canada was the second largest auto exporter in the world and Canadian-made cars, namely the McLaughlin Buick, were the choice globally, preferred by British royalty and tycoons everywhere.

North America’s automotive companies grew during the Depression, then retooled their factories for the Second World War effort. Then everything changed.

America went on to bigger success as its highway system and middle class exploded. But Canada’s auto industry sputtered because after the war, Britain ended the Commonwealth tariff-free privilege and instead turned its sights onto joining a booming Europe.

Canadians proposed the Auto Pact to the Americans and they agreed. This “fair trade” agreement became the template for the 1989 Free Trade Agreement, then NAFTA. Now Trump is revising the deal because Mexico’s excessively low wage levels have gutted the auto regions of Canada and the U.S.

Mexico is the target, not Canada, and even if NAFTA is rescinded, the two northern Amigos will continue to integrate and get along trade-wise. This is based in part, as before, on the deep-seated socio-economic relationships between the two, but also because Canada will become more useful to the United States in terms of trade.

Brexit proponents intend to resurrect the Commonwealth tariff-free agreement at upcoming meetings this summer.

This is an obvious plus for Canada and — if even partially pulled off — would be beneficial for Canadians and for American subsidiaries operating in Canada, who would then have access to a gigantic Commonwealth market.

This is no small matter. There are 52 nations in the Commonwealth, which comprise one-third of the world’s population – or 2.3 billion people – and would represent the biggest market globally.

Proponents of a reactivated Commonwealth strategy are suggesting a staged implementation. Initial members would be Australia, Canada, New Zealand, and the United Kingdom, followed by India and South Africa, then the rest.

That would be enormously positive for Canada, especially in tandem with the fact that Canada has a free trade agreement with the European Union, which the United States does not.

A Commonwealth deal and European Union deal make Canada a very desirable place for Americans to export tariff-free to almost half the world without inking a free trade deal themselves.

This worked for Canada during the automobile century and now positions Canada to succeed in the 21st century, thanks to protectionism and populism in the U.S. and U.K.

 

published National Post april 6, 2018http://business.financialpost.com/diane-francis/u-s-and-u-k-s-populist-protectionist-policies-could-turn-canada-into-trade-powerhouse

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