Economists would argue that Canada needs to be a trading nation in order to prosper. We have a relatively small population and domestic market. Firms that produce products or services not only for Canadians but for people in other countries can generate greater efficiency (economies of scale) by serving the larger market. In addition, there are various products that we cannot produce efficiently in Canada, if at all, so we have to import them. We need lots of exports to offset the imports and help us to retain as much of a balance in trade as possible. So we focus our economic activity on what we can do best, and we import everything else.
In theory all of this makes perfect sense but in practice things become more complicated. The more we specialize in products and services that we can produce most efficiently, the more we become dependent on other countries for the rest. Various free trade agreements have helped to safeguard our access to other markets, but even with these agreements political developments can throw up barriers. A good example is found in the restrictions on Canadian exports imposed during the Trump presidency, even though the result was to deprive various American states of Canadian products on which they relied. Another problem with dependence on imports from other countries is that this reliance can cause us to curtail criticism of the actions of such countries, thereby compromising our principles and integrity. This has been evident over the years in our guarded commentary about abuses by Middle East powers who supply a good deal of the oil used in Canada and – more recently – about the abuses and genocidal actions by China.
The Example of Oil
It is ridiculous that Eastern Canada relies on the importation of oil from the Middle East while Alberta struggles to find markets for its oil in America and beyond – a challenge now much greater with President Biden’s cancellation of the proposed Keystone pipeline that would have carried Alberta oil south as far as Texas. The Governor of Michigan has signed an order that would soon close an Enbridge pipeline that crosses into the U.S. before delivering oil to Ontario and Quebec (and part of the mid-west) – although court challenges will delay this decision.
The obvious solution would be a pipeline that runs from west to east across Canada, removing our dependence on foreign oil and providing an assured market for Alberta oil. But such a project has never been possible because of opposition from various groups, localities, and aboriginal communities. [I appreciate that many would prefer to see oil production cease entirely. But until the day comes, Canada finds itself dependent on oil from Middle East dictators and Alberta is dependent on decisions of American politicians – all because we have been unable to remove the barriers that would allow us to be self-sufficient in energy.]
Barriers within the Canadian Market
Indeed, we have all sorts of barriers to the free movement of goods and services within Canada. As discussed in an earlier blog, a Senate Committee report in 2006 estimated that interprovincial trade barriers reduced Canada’s GDP (Gross Domestic Product) by between $50 billion and $130 billion, and that negative impact has only increased over the years since. The situation was certainly not helped by a very curious Supreme Court decision with respect to the actions of a New Brunswick resident who was tired of paying more for beer in his province and drove into Quebec, bought a substantial amount of suds, and was arrested at the border with New Brunswick for illegally importing the brew. He fought back in court and after six years Canada’s highest court made its decision.
Even though Section 121 of the Canadian constitution states that goods must be “admitted free” as they move from one province to another, the court somehow found that phrase ambiguous and decided that provinces were within their rights to impose limits on just such interprovincial movement of goods. So our plucky New Brunswick beer drinker had to pay his fine and is still only allowed, legally, to bring 12 bottles of beer across the border from Quebec. Ironically, he can bring 24 bottles of beer across the border from the U.S. It is enough to make us cry in our beer – or, in my case, whine in my wine!
A More Self-Sufficient Canada?
There is no doubt that any move to make Canada more self-sufficient would have some adverse consequences. Some goods and services might not be available at all or, at least, would be very difficult and expensive to obtain. Some goods and services would cost more if produced domestically, especially if the Canadian firms had more limited access to foreign markets and, therefore, a reduced scale of production. But if more people have manufacturing jobs here in Canada, they can afford to pay for the more expensive products. If the vast numbers of very poorly paid workers who have saved our lives and helped us survive during the prolonged pandemic are paid a decent wage, they can also afford to pay somewhat more for these products. Will our post-COVID world be more of the same – maximum specialization and free trade, along with increased income inequality and dependence on other countries for essential products and services? Or are we and our governments prepared to make the personal choices and the tough decisions that allow Canada to gain at least some increase in self-sufficiency?