Poloz on trade

Stephen Poloz has now been at the helm of the Bank of Canada for three years, probably enough time for many people to have forgotten that he's not a banker by profession.  His expertise is in the field of foreign trade; before coming to the Bank of Canada he was head of Canada's Export Development Corporation.

In a speech today in Oshawa, Ontario (the Canadian home of General Motors), Poloz returns to his roots*, making the case for Canada to stay open to flows of trade, immigrants and capital as it has always done in the past.  With official Ottawa holding its breath to see when the Trump administration will turn its attention to the promised (threatened?) renegotiation of the NAFTA agreement, it's a timely topic.

The pushback against decades of free trade, and particularly multilateral (as opposed to bilateral) trade agreements, predates the election of Trump.  What lies behind it is the sense that, whatever the theoretical benefits of open markets might be, too many people have found themselves much worse off, while a rather smaller number have prospered mightily.  This is, of course, a much-simplified view.  Shareholders in some corporations have done very well out of free trade, but others have seen their companies wither and die (as the entire US auto industry almost did).  Auto workers in Flint MI have seen their livelihoods destroyed, but employees in the "right to work" states in the south and in Mexico have benefited.  Still, the narrative that free trade is a destroyer of "good jobs" has proved powerful in an era of populism.

In calling for Canada to maintain its free trade stance, Poloz addresses this directly:

“What is crucial is that we deploy some of the benefits of being open to assist those who need help adjusting to global forces. Failing to do so invites doubt and puts everyone’s progress at stake.”

Exactly so; that's what it says in the textbooks.  But when does that ever happen? The winners pocket the gains and the losers are left to pick up the pieces.  In my own area, the highly-skilled metal-bashers of a few decades ago are working for minimum wage in call centres or in the casinos of Niagara Falls.  They can no longer afford the vehicles they used to build.

If we look ahead toward the renegotiation of NAFTA, we can easily see which sectors in Canada may be at risk.  An obvious example is the dairy industry, which operates under a system of "supply management" that keeps foreign products out of the local market.  That's why I pay several times as much for milk, butter and eggs as I would if I lived five miles away, across the Niagara River.  US dairy producers have had their sights on the supply management system for years, and it's certain to be a sticking point when the NAFTA negotiations start.

Canadians would doubtless be overjoyed to start paying less for basic foodstuffs.  Would they also be prepared to pony up some extra taxes to provide a cushion for the farmers that get put out of business?  That's a whole lot less certain.

* In more ways than one: Oshawa is his home town.