5 Free Trade Failures They Don’t Tell You About

A large part of the rhetoric out of the United States these days has to do with free trade.  Specifically, how Americans are getting screwed by trade deals, including the Canada-US Free Trade Agreement (FTA) and its follow-up, NAFTA.  North of the border, the business, political and media establishment are all in a tizzy about what this means for Canada.

It might be hard to remember, but at one time the Liberal Party was actually against free trade.

But now, the Liberals and in lock step with the rest of the business elite in Canada. To the establishment, Free Trade is the economic bedrock to their very view of the world.  And why wouldn’t it be.  They have done very well for themselves during the “age of free trade”, despite the view from the ground being much different.  What is always missing from the discussion of whether free trade has benefited Canada are actual facts.

Ever wonder why we have gone from being a mixed economy country with healthy manufacturing to a virtual petro-state that is obsessed with whether pipelines are being built?  The establishment never talks about it.  Take a drive though southern Ontario, the country’s former manufacturing hotbed, and you see town after town struggling to reinvent themselves after a collapse of the manufacturing economy that built their foundations.  However, the establishment can’t see this from their homes in the GTA.  Their view of these towns is one of a curious weekend tourist.  They never stop to ask, “What happened here?”.  And the media doesn’t ask this either.

So what are the results from Free Trade? Did Canada benefit as much as the proponents claim? An analysis from a few years ago, lost in the media fog of the former Conservative Government, reveals many #FreeTradeFails:

  • Quantity of exports: In the mid-1980s, before Brian Mulroney and Ronald Reagan inked their deal, Canada’s exports to the United States accounted for 19 per cent of Canadian GDP. Today, they account for 19 per cent of Canadian GDP. Any boost to exports from the deal was temporary, and has since been completely reversed.

  • Composition of exports: In the mid-1980s, most of Canada’s exports to the U.S. consisted of relatively sophisticated manufactured goods (including automobiles, electronics and machinery). Today, most of our southbound exports consist of unprocessed or barely processed primary and resource products.

  • U.S. market: In the mid-1980s, 19 per cent of all U.S. imports came from Canada. Today, our share of their imports is just 14 per cent. So much for “special access.” Yet, we still rely on the U.S. for 75 per cent of all our export sales – just as high as before the deal.

  • Productivity: In the mid-1980s, average productivity in Canadian businesses equalled 90 per cent of U.S. levels. Free-trade advocates predicted that continental integration would eliminate that gap – but we’ve gone backward, and fast. Today, our productivity is just 72 per cent of U.S. levels.

  • Incomes: Proponents also promised that productivity gains from free trade would translate into higher incomes. There’s been no productivity dividend, and no income growth, either. In fact, last year’s median family incomes, adjusted for inflation, were exactly the same as in 1980 – not a dollar of income growth over the whole period.

It’s hard to find any concrete economic evidence whatsoever that the historic FTA deal actually helped Canada. Yet, despite the dearth of hard economic evidence on the deal’s benefits, anyone who dares question the loud consensus that free trade is self-evidently beneficial is ridiculed as economically illiterate.

The core of the free-trade agreement consisted of a historic quid pro quo. Canada wanted exemption from U.S. countervailing powers. In return, Canada granted the Americans secure access to our energy, even during times of shortage (through an energy-sharing provision that has never been accepted by any other country). We all know what came of the first part of that deal (softwood lumber, Buy America etc.). But the second part became reality, laying the institutional groundwork for a resource export boom that is remaking our national economy.

In the end, the numbers speak for themselves. If the goal was truly more and better trade, then the free-trade agreement clearly hurt Canada more than it helped.

With President Trump promising to reopen discussion about trade deals, this has the potential for Canadians to ask, what’s really in our best interest? As the reality of Free Trade increasingly starts to be recognized by the general population, a backlash could grow against the Canadian establishment who slavishly defend the status quo.  This sets the stage for more significant political change.