Quotulatiousness

December 16, 2024

Winners and losers from free trade

Filed under: Economics — Tags: , , , — Nicholas @ 04:00

At the Foundation for Economic Education, Patrick Carroll responds to a recent Robert Reich rant about the winners and losers under free trade:

Image Credit: YouTube screenshot – Robert Reich

Myth #6 on Robert Reich’s list of economic myths is called “Global Trade Benefits Everyone”.

“Have you heard this lie?” Reich opens. “‘Global trade is good for everyone.'” His pants then light on fire. “Ahh!” he screams. “That’s bunk!”

Watching that opening sequence was an immediate déjà vu moment for me, because I had recently come across an article making the same claim as Reich. The article argued that free market economists are simply wrong to claim that “everyone gains” from free trade, because clearly there are some losers.

The ironic part is, that article was written by none other than Bryan Caplan, one of the world’s leading free market economists.

“What makes me so sure that ‘Everyone gains from X’ is invariably a blatant falsehood? Because every change causes price movements, which are automatically bad for someone or other,” Caplan writes. “The Industrial Revolution was great overall, but hurt traditional craftsmen. The Internet is great overall, but hurt travel agents. Congestion pricing is great overall, but bad for cheapskates with high traffic tolerance. Free trade is great overall, but not for workers and investors in industries that can’t survive at world prices.”

[…]

This would be a rather short article if Reich were simply making the same point as Caplan. “I agree, but Caplan said it better,” would probably be my thesis. But alas, Reich goes in a rather different direction than Caplan does, and that’s where some more rigorous analysis is needed. Here’s how he presents his argument:

    Many economists believe in the doctrine of comparative advantage, which posits that trade is good for all nations when each nation specializes in what it does best. But what about costs to workers and the environment? What if a country’s comparative advantage comes from people working under dangerous or exploitative conditions, or from preventing them from forming labor unions, or allowing employers to hire young children? Or from polluting the atmosphere or the ocean, or destroying rainforests and polluting groundwater?

Reich makes a fair point that global trade isn’t all sunshine and roses. Working conditions in some places are atrocious, and environmental damage is also a very real problem. But the fact that working and environmental conditions are far from ideal in many parts of the world does not mean that restricting trade will necessarily make things better. In fact, it’s quite likely that less trade would make things worse, because it would cut off the global poor from opportunities for production and economic growth.

Reich highlights the costs of trade, but there are also immense benefits that the global poor reap from the arrangement. If these benefits outweigh the costs — as they likely do in most cases — then who’s really the advocate of the downtrodden: the ones cheering on mutually beneficial trade, or the ones trying to stop it because they can only see the downsides?

To be fair, Reich doesn’t come out and advocate for cutting off trade. But this raises the question: what exactly is he advocating for? Anyone can point out problems, but the real question is: what solution are you proposing? Maybe he’ll tell us in the next section:

    My old boss Bill Clinton called globalization “the economic equivalent of a force of nature, like wind or water”. But globalization is not a force of nature. Global trade is structured by rules negotiated between nations about which assets will be protected and which will not. These rules determine who benefits and who is harmed by trade. Over recent decades, trade deals such as the North American Free Trade Act (NAFTA) and agreements under the World Trade Organization (WTO) have protected the assets of US corporations, including intellectual property.

Reich goes on to list a few ways that these rules have helped large corporations, such as oil companies, financial institutions, Big Pharma, and Big Ag.

Watching this part of the video ushered in a second instance of déjà vu. I remembered reading somewhere, just recently, that NAFTA was rotten to the core, just like Reich was saying.

Yet again, it was a staunch free market economist making this point — Murray Rothbard, in a number of incisive articles that were part of his 1995 anthology Making Economic Sense. The problem, said Rothbard, is that NAFTA was really the opposite of free trade.

September 15, 2019

Explaining Brexit to liberal Americans

Filed under: Britain, Europe, History, Law, Politics — Tags: , , , , , — Nicholas @ 05:00

Andrew Sullivan tries to put the Brexit debate into terms that coastal, urban Americans can understand:

One of the frustrating aspects of reading the U.S. media’s coverage of Brexit is that you’d never get any idea why it happened in the first place. Brexit is treated, automatically, as some kind of pathology, a populist act of wanton self-harm, an absurd idea, etc etc. And from the perspective of an upstanding member of the left-liberal media establishment, that’s all true. If your idea of Britain is formed by jetting in and out of London, a multicultural, global metropolis that is as lively and European as any city on the Continent, you’d think that E.U. membership is a no-brainer. Now that the full hellish economic consequences of exit are in full view, what could possibly be the impulse to stick with it?

I get this. I would have voted Remain. I find London to be far more fun now than it was when I left the place. But allow me to suggest a parallel version of Britain’s situation — but with the U.S. The U.S. negotiated with Canada and Mexico to create a free trade zone called NAFTA, just as the U.K. negotiated entry to what was then a free trade zone called the “European Economic Community” in 1973. Now imagine further that NAFTA required complete freedom of movement for people across all three countries. Any Mexican or Canadian citizen would have the automatic right to live and work in the U.S., including access to public assistance, and every American could live and work in Mexico and Canada on the same grounds. This three-country grouping then establishes its own Supreme Court, which has a veto over the U.S. Supreme Court. And then there’s a new currency to replace the dollar, governed by a new central bank, located in Ottawa.

How many Americans would support this? How many votes would a candidate for president get if he or she proposed it? The questions answer themselves. It would be unimaginable for the U.S. to allow itself to be governed by an entity more authoritative than its own government. It would signify the end of the American experiment, because it would effectively be the end of the American nation-state. But this is precisely the position the U.K. has been in for most of my lifetime. The U.K. has no control over immigration from 27 other countries in Europe, and its less regulated economy has attracted hundreds of thousands of foreigners to work in the country, transforming its culture and stressing its hospitals, schools and transportation system. Its courts ultimately have to answer to the European Court. Most aspects of its economy are governed by rules set in Brussels. It cannot independently negotiate any aspect of its own trade agreements. I think the cost-benefit analysis still favors being a member of the E.U. But it is not crazy to come to the opposite conclusion.

More to the point, the European Economic Community has evolved over the years into something far more ambitious. Through various treaties — Maastricht and Lisbon, for example — what is now called the European Union (note the shift in language) has embarked on a process of ever-greater integration: a common currency, a common foreign policy and now, if Macron has his way, a common central bank. It is requiring the surrender and pooling of more and more national sovereignty from its members. And in this series of surrenders, Britain is unique in its history and identity. In the last century, every other European country has experienced the most severe loss of sovereignty a nation can experience: the occupation of a foreign army on its soil. Britain hasn’t. Its government has retained control of its own island territory now for a thousand years. More salient: this very resistance has come to define the character of the country, idealized by Churchill in the country’s darkest hour. Britain was always going to have more trouble pooling sovereignty than others. And the more ambitious the E.U. became, the more trouble the U.K. had.

October 3, 2018

USMCA (aka son-of-NAFTA) – what’s the damage after all?

Filed under: Business, Cancon, Economics, USA — Tags: , , , , , — Nicholas @ 03:00

The most common sentiment from Canadian comments appears to be “meh, it could have been much worse”. That doesn’t mean it’s particularly good, either:

All that cross-border yelling, a solid year of bluster and petulance, dire rhetoric about “stabs in the back” and “special places in hell,” fake deadlines and all-night negotiations, and we end up with pretty much the agreement we started with? All that was required to fix NAFTA, that destroyer of American jobs and pox on its prosperity, the deal Donald Trump memorably complained was “the worst agreement in history,” was to change its name — from North American Free Trade Agreement to US-Mexico-Canada Agreement? Seriously?

Not quite. The result is certainly a far heave from some of the more apocalyptic scenarios we had been entertaining ourselves with. But neither is it the largely unaltered “NAFTA 2.0” of much initial comment. There are substantive changes in there, most of them bad, and not all of them imposed by an overbearing U.S. on an unwilling Canada.

Still, it’s not quite the conflagration we’d been banking on, is it? Trump is the bully in middle school who threatens to take your lunch money, only to settle for a half a slice of your pizza. Or, in this case, 3.6 per cent of it.

That’s the share of the Canadian dairy market to which the U.S. will now have tariff-free access, a slight advance on the 3.25 per cent market share the U.S. had negotiated under the Trans Pacific Partnership — before Trump withdrew from it. (Oh, and “milk price classes 6 and 7” are eliminated, for fans of that dispute. It involves skim milk solids.) There are also some minor increases in tariff-free imports in the other supply-managed sectors: eggs, chicken, cheese and so on. Everything else will face the same triple-digit tariffs, as before.

That’s unfortunate. Supply management is a blight on the Canadian political and economic landscape we could well do without. The NAFTA re-negotiations were an ideal opportunity to bargain it away, as it should have been in the original NAFTA. That it remains more or less intact — even the dairy lobby could manage only a half-hearted jeremiad of imminent lacto-doom in response — is one of the chief disappointments in this agreement.

Still, what did you expect? There was never any chance of these negotiations resulting in a deepening and broadening of NAFTA — not with protectionists on both sides of the table. The only question was whether the status quo protectionists on this side — who wished to preserve all of NAFTA’s existing exemptions — could hold out against the expansionist protectionists on the other, who wished to cut NAFTA into little mercantilist pieces. As it turns out the answer is: surprisingly well.

A quick summary of the winners and losers in this agreement:

Is this a free trade agreement?

No. Unlike NAFTA, this latest agreement makes no pretense to be about free trade (or even freer trade). It’s a protectionist agreement imposed by the U.S. on the other two countries.

Who benefits from the agreement?

The primary beneficiaries of the agreement are labor unions, U.S. dairy farmers, U.S. drug manufacturers, and companies that provide automation for manufacturers (e.g., robot makers).

The agreement will require at least 30 percent of cars (rising to 40 percent by 2023) to be made by workers earning $16 an hour. This will force more cars to be produced in the U.S. and Canada since the typical manufacturing wage in Mexico is only about $5 per hour. The agreement also requires Mexico to make it easier for workers to form unions, which will make them less competitive against more productive unionized workers in the U.S. and Canada.

U.S. dairy farmers will also gain greater access to the Canadian market. Because of new restrictions on how much dairy Canada can export, there is the potential for U.S. dairy to gain a greater market share in foreign countries.

U.S. drug companies will also be able to sell pharmaceuticals in Canada for 10 years (rather than eight) before facing generic competition.

Because the agreement makes human labor in the three countries somewhat more costly, companies that create robots and other automation will likely be the long-term beneficiaries.

Who are the biggest losers in this agreement?

As with almost all protectionist trade agreements, consumers are the ones who will be hurt the most.

As the Washington Post notes, economists and auto experts think USMCA is going to cause car prices in the U.S. to “rise and the selection to go down, especially on small cars that used to be produced in Mexico but may not be able to be brought across the border duty-free anymore.”

Because the restrictions on Canadian steel and aluminum also remain in place, businesses that use those materials in manufacturing will pay inflated prices, and their products will be less competitive on the global market.

September 9, 2018

“This isn’t hardball so much as Calvinball: a game where one player constantly makes up new rules as he goes along”

Filed under: Cancon, Economics, USA — Tags: , , — Nicholas @ 03:00

Andrew Coyne provides a useful set of clues to help ordinary folks understand the NAFTA “negotiations”:

Talks on a renegotiated North American Free Trade Agreement, which at various times in the past days, weeks and months have been said to be on the verge of either a deal or collapse, are now reported to be “progressing slowly.” An agreement was not expected by the end of the day Friday. Some reports said it was not expected till the end of the month. Or maybe December.

In other words, business as usual. Had you read none of the several thousand reports on the negotiations since they began more than a year ago you would be scarcely less informed than the most avid trade watcher. Some points to bear in mind as the talks grind toward their next “deadline”:

No one knows anything. Any number of authoritative commentators have weighed in on the failure of the talks, if they are in fact failing, and who is to blame if they are. But the truth is that unless you were in the room with the negotiators you have no idea what is really going on — assuming even they do. This is not because there have been no leaks or official accounts of the proceedings, but because…

Everyone is lying to you. Many a rookie reporter has had the same experience covering a labour negotiation. The talks are said to be coming “down to the wire,” facing a dramatic “midnight deadline.” Sources close to one side or the other confide there will be “no more concessions,” that a “strike is now unavoidable.”

So the deadline comes and goes and nothing happens: they keep talking. Or else the side that had vowed not to give an inch more caves and cuts a deal. Which is to say that while all sides dutifully proclaim their aversion to “negotiating through the media,” everyone negotiates through the media, all the time. The NAFTA talks are no different.

The NAFTA talks are completely different. There has never been a trade negotiation like this, because there has never been a president, or leader of any major country, like Donald Trump. It isn’t just that he lies all the time, or changes his mind on those occasions when he is not lying.

August 7, 2018

“[Trudeau’s] ideology is jeopardizing 20% of the Canadian economy”

Filed under: Business, Cancon, Economics, Politics, USA — Tags: , , , , , — Nicholas @ 05:00

Brandon Kirby on Prime Minister Justin Trudeau’s failing efforts to negotiate with the United States on trade:

Trade with Canada constitutes 2% of America’s GDP and trade with America constitutes a whopping 20% of Canada’s GDP. My home province of New Brunswick finds 50% of its private sector exporting to the U.S. – NAFTA is of vital importance to our economy.

The dwindling efforts of Trudeau’s cabinet to negotiate a deal with the Americans could become his government’s greatest failure. With tariffs already being imposed on steel and aluminum, NAFTA is potentially unraveling before our eyes and along with it, the Canadian economy.

Trudeau’s American counterpart isn’t known for his vocal support of trade and yet he handed Canada everything on a silver platter at the recent G7 summit. He offered to remove all tariffs and subsidies on imports and exports, provided Canada did the same. This is about as fair an offer as one could expect. Trudeau retaliated by insisting Canada had been insulted.

The trouble with Trudeau is precisely that. He was given a talking point. He developed rhetoric rather than substance. Akin to Marco Rubio’s disaster of a debate performance, who refused to go off script even when he was being called out for scripted answers, Trudeau had a talking point. It was a good one, Canadians and Americans died together in the mountains of Afghanistan to bring justice for Americans who died on September 11th. Trump alluded to our tariffs on their dairy farmers as a national security threat. But when Trump acquiesced, Trudeau kept to his talking points and refused to go off script, even when his talking points no longer made sense.

The initial renegotiation began with Trudeau’s government attempting to include a chapter on gender. The Americans weren’t enthusiastic about devoting a significant portion of their time at the negotiations to discussing an unenforceable chapter of the deal, but Trudeau pressed on.

The liberal rationale in the briefing notes was leaked, “Think back 20 years and remember the early discussions of labour and environment in the context of trade agreements.”

Environmental and labour standards were included in the negotiations of decades past because a country that has humane labour standards is at a trade disadvantage to countries that neglect their workers and their environment. Gender doesn’t have any bearing on trade. His ideology is jeopardizing 20% of the Canadian economy.

June 11, 2018

Jay Currie says it’s time to light the Bat Signal for … Brian Mulroney?

Filed under: Business, Cancon, Economics, Government, USA — Tags: , , , , , , — Nicholas @ 05:00

I find it hard to believe that things have gotten to the point that anyone, let alone Jay Currie, is looking to former PM Brian Mulroney to pull Justin’s chestnuts out of the Trumpian fire:

In Canada, more specifically Ontario, the destruction of the auto industry would be a full scale, all hands on deck, disaster. Realistically, the auto sector is Ontario’s largest private sector employer and the largest manufacturing sector. Being priced out of the US market would kill tens of thousands of well-paid jobs.

Trump has taken the measure of Trudeau and his tiny, annoying, Minister of External Affairs, Chrystia Freeland and concluded they are featherweights. Which means that Canada is potentially screwed because Trump has no faith in our leadership. You don’t call people dishonest publicly if you plan to do business with them.

It is unlikely that Trudeau will be aware of just how badly he has failed for a few days. The Canadian media are heavily invested in a narrative which has Justin standing up to the big, bad, Trump. Trudeau’s tone-deaf advisors are, no doubt, revelling in the fact they got lots of “gender” language into the communique.

It will take a few days for the more sober side of the media to realize what peril Trudeau has put us in. And a few more for the geniuses in the PMO to figure out that Trump is not playing the same game as they are.

When they do figure it out the question will arise, “What the fuck do we do now?”

As I am quite sure Butz and his posse read this blog I have a simple suggestion.

Normally, I would have suggested they get in touch with Simon Reisman who negotiated both the Auto-Pact and NAFTA. Alas, Reisman is dead.

Second best by a long shot? Brian Mulroney. A man I have next to no time for but who a) managed to get Canadians onboard for NAFTA, b) was a quite successful Canadian Prime Minister, c) is wired into both Trump World and broad swaths of corporate America.

If Trudeau could get Mulroney to do it Mulroney would be going into the US with a serious, well thought out, everything on the table, pitch. Likely starting with first principles – no tariffs, no subsidies, no non-tariff barriers. Be prepared to dump dairy and end transhipment of Chinese steel. And pitch it to the Trump people as the template for the deals which could be made with the EU, Japan, India and so on. (China is a whole other thing.)

The key point here is that Canada has to move, and move quickly, away from the finger-wagging politics of gender inclusion and climate change to a hard-nosed business approach to getting the best deal we can with an America which is now willing to put its own interests first.

July 23, 2017

Canada won’t give up on supply management, for fear of Quebec backlash

Filed under: Business, Cancon, Government — Tags: , , , , , , — Nicholas @ 06:00

Pierre-Guy Veer provides a guided tour of Canada’s supply management system, with appropriate emphasis on the role Quebec dairy producers play in keeping the anti-competitive system in place:

Spared by the North American Free Trade Agreement in 1994, the Canadian milk supply restrictions are “in danger” again. Because of trade negotiations with the US and Europe, foreign farmers want better access to the Canadian market.

However, hearing complaints from the US about unfree dairy markets comes as paradoxical. Indeed, since the Great Depression, the dairy industry has been anything but free. It profits from various subsidies programs including “the Dairy Price Support Program, which bought up surplus production at guaranteed prices; the Milk Income Loss Contracts (MILC), which subsidized farmers when prices fall below certain thresholds, and many others.” It even came close to supply management in 2014, according to the Wilson Center.

But nevertheless, should US farmers ever have greater access to Canadian markets, it won’t be without a tough fight from Canadian farmers, especially those from the province of Quebec. Per provincial Agriculture Ministry (MAPAQ) figures, the dairy industry is the most lucrative farm activity, accounting for 28% of all farm revenues in the province, but also 37% of national milk revenues in 2013. “La Belle Province” also has 41% of all milk transformation manufacturers in Canada.

As is almost always the case with “protected” domestic markets, the overall costs to the Canadian economy are large, but the potential benefit to individual Canadian consumers for getting rid of supply management is relatively small (around $300 per year), but the benefits are tightly concentrated on the protected dairy producers and associated businesses.

But even though the near entirety of the population would profit from freer dairy markets, their liberalization will not happen anytime soon.

Basic Public Choice theory teaches that tiny organized minorities (here: milk producers) have so much to gain from making sure that the status quo remains. A region like Montérégie (Montreal’s South Shore) produced over 20% of all gross milk revenues in 2016. There are 23 out of 125 seats in that region, making it the most populous after Montreal (28 seats). So if a politician dares to question their way of living, milk producers will come together to make sure he or she doesn’t get elected. Libertarian-leaning Maxime Bernier learned it the hard way during the Canadian Conservative Party leadership race; producers banded together – some even joined the Conservative Party just for the race – and instead elected friendlier Andrew Scheer.

On the provincial level, all political parties in the National Assembly openly support milk quotas. From the Liberal Party to Coalition Avenir Québec and to Québec Solidaire, no one will openly talk against milk quotas. However, and maybe unwillingly, separatist leader Martine Ouellet gave the very reason why milk quotas are so important: they keep the dairy industry alive.

May 7, 2017

Canada-US trade relationship, visually

Filed under: Business, Cancon, Economics, USA — Tags: , , , — Nicholas @ 03:00

With all the talk (mostly from President Trump) about abandoning existing trade relationships like NAFTA, it’s worth looking at just how closely related the US and Canadian economies are (below the fold, because the graphic is yuuuuuge):

(more…)

April 20, 2017

QotD: Free trade versus freer trade

Filed under: Economics, Quotations — Tags: , , , — Nicholas @ 01:00

No trade agreement is necessary for a government to adopt this ideal policy [true free trade]. And because real-world trade agreements universally fail to achieve complete free trade, real-world trade agreements are universally less than ideal. Each such agreement can and should be criticized for failing to achieve an ideal that is economically not only possible, but easily economically possible and immensely beneficial.

But political realities being unavoidable – and freer trade being superior to not-freer trade – freer trade is an acceptable real-world outcome. In my assessment (as in the assessment of many others), most so-called free-trade agreements make trade freer. (A more-accurate name for them would be “freer-trade agreements.”) And for this reason such agreements deserve the support of proponents of free markets if the only plausible option is the status quo of not-freer trade.

For free-market proponents to oppose freer trade because it isn’t fully free trade is akin to opposing cuts in marginal tax rates because the proposed cuts don’t eliminate taxes altogether. It’s akin to opposing legalization of marijuana if not all drugs are legalized. Or akin to a refusal to join with, or to support, those who oppose raising the minimum wage on the grounds that those opponents aren’t actively working for a complete abolition of minimum wages.

It is true that NAFTA, WTO agreements, TPP, and other such bilateral and multilateral freer-trade agreements leave in place many trade barriers and specify the always-too-slow timing of tariff reductions. But these arrangements are no more instruments of “managed trade” than are government policies that prohibit the sale of some drugs, sex, and body organs – and impose taxes on the sales of all other goods, – instruments of “managed consumption.” While I argue for eliminating all of these promotions and taxes, if such elimination isn’t politically feasible, then any move to reduce the number of prohibitions and the rate of taxation will make market freer and, hence, worthy of the support of proponents of free markets.

Don Boudreaux, “Bonus Quotation of the Day…”, Café Hayek, 2016-11-22.

February 8, 2017

Seeing the elephant (economic edition)

Filed under: Cancon, Economics, Politics, USA — Tags: , , , , — Nicholas @ 04:00

Stephen Gordon says it’s a dangerous fantasy to think that the Canadian economy could cope with a Prime Minister who tries to “get tough” over Il Donalduce‘s trade concerns:

Pierre Trudeau once described the Canadian relationship with the United States as “like sleeping with an elephant. No matter how friendly and even-tempered the beast … one is affected by every twitch and grunt.” It is now Prime Minister Justin Trudeau’s bad luck – and ours – to be bunking down with a surly and irascible elephant.

It’s worth dwelling on just how asymmetric the economic relationship is between Canada and the United States. It’s sometimes pointed out that Canada is the largest market for U.S. exports, and that’s true as far as it goes. But U.S. dependence on the Canadian export market is an order of magnitude smaller than Canadian dependence on exports to the U.S. Exports of goods and services to the U.S. accounted for 22.8 per cent of Canadian GDP in 2015; U.S. exports to Canada were only 1.9 per cent of U.S. GDP.

There’s not much that could or should have been done to reduce this dependence on the U.S. market. All the factors that determine the volume of trade flows — physical proximity, market size, linguistic and cultural ties, similar legal systems and so forth — all point to the U.S. It’s always been a good idea to promote trade links with other countries, but the U.S. would still be our dominant export market even in a world in which the Comprehensive Economic and Trade Agreement and the Trans-Pacific Partnership were already in place.

So it really doesn’t make sense to think that a Canadian Prime Minister can “stand up” and “fight back” against U.S. sanctions, or that Canada’s bargaining position would be somehow strengthened if another person were running the government. The trade numbers would still be the same.

December 11, 2016

Re-negotiating NAFTA (and the Defence Production Sharing Program, too)

Filed under: Cancon, Economics, USA — Tags: , , , — Nicholas @ 04:00

Ted Campbell is in favour of bringing NAFTA up-to-date and reminds us that there’s another diplomatic item that could use modernization at the same time:

In my opinion, if Prime Minister Justin Trudeau, or the next Conservative leader is really interested in restoring Canada to a leading position in real, practical, long term peacekeeping then (s)he will abandon the United Nations and, instead, turn Canada into a free trade powerhouse by dropping our remaining protectionist measures, as Maxime Bernier and Colin Robertson both advocate, and making deals with all comers. And it is important to remember that “deals” involve two sides and both sides must gain something which means that both sides probably “give” something, too, and that produces short term “losers” and it is politically important to try to “soften” the transition for those who are bound to lose in the short term. But, in the mid to long term most losses are “covered” by gains in new products and services and the utilitarian goal of “the greatest good for the greatest number” is achieved … most of the time.

One of the things Colin Robertson mentioned was shipbuilding and it leads me to consider that one of the things we want to renew if or when we must renegotiate NAFTA is the Defence development sharing agreement between Canada and the United States of America. The stated objective of the existing (since 1963) agreement are:

  1. To assist in maintaining the Defense Production Sharing Program at a high level by making it possible for Canadian firms to perform research and development work undertaken to meet the requirements of U.S. armed forces.
  2. To utilize better the industrial scientific and technical resources of the United States and Canada in the interest of mutual defense.
  3. To make possible the standardization and interchangeability of a larger amount of the equipment necessary for the defense of United States and Canada.

The Defence Production Sharing Program is, too often, hamstrung by US (and Canadian) protectionist measures and it needs to be brought more fully into the area of bilateral free trade. I am not suggesting that the Pentagon would ever let, say, a significant shipbuilding contract to a Canadian yard but it must be possible for Canadian shipyards and factories and service providers to bid on US defence contracts on at least a “near equal” basis and vice-versa, of course. This, free(er) trade in defence materiel and services is one area where we, North Americans, can learn from the Europeans. I am not suggesting that Canada should abandon the idea of having a national defence industrial base but, rather, that we should have a base that fits, neatly, into a larger continental base that is, somehow, connected to other allied defence production systems.

So, broadly, when (if) President elect Trump says he wants to renegotiate NAFTA we should, indeed, say “bring it on!” But we should go into negotiations with our eyes wide open, prepared to surrender some “losers,” as good bridge players do, in order to finesse some winners for ourselves.

November 24, 2016

The Ontario government’s anti-Midas touch in energy projects

Filed under: Business, Cancon, Politics — Tags: , , — Nicholas @ 09:54

All governments at every level waste money. It’s one of the things that governments do far better than the private sector. Yet the Ontario provincial government takes wasting money to a state of near perfection in their Wolfe Island offshore wind farm dealings:

A few years ago, I took this photo of some of the onshore wind turbines on Wolfe Island. I don't have any photos of the offshore installations, because they haven't been built.

A few years ago, I took this photo of some of the onshore wind turbines on Wolfe Island. I don’t have any photos of the offshore installations, because they haven’t been built.

In 2010, the government of Ontario, keen to jumpstart its green energy sector, signed a 20-year deal to buy 300 megawatts of electricity from turbines that the New York investors behind Windstream agreed to erect.

Things got messy mere months later in February 2011 when the provincial Liberals, fearing they would lose an election, slapped a moratorium on offshore wind projects, none of which had ever been built. Around the same time, Ontario cancelled two unpopular natural gas power plants, a move that cost provincial taxpayers about $1 billion.

After waiting five years to get approval to build their wind turbines, Mars and his group lost their patience.

“I have a group of very high-net-worth individuals who invest across energy and technology,” Mars said in a series of interviews from his office in Manhattan. “The contract remains in force. We would like to either build it or come up with an amicable solution. We have gotten many mixed messages on this.”

They complained to the Permanent Court of Arbitration under Chapter 11 of the North American Free Trade Agreement. A panel of three arbitrators heard the case in Toronto last February.

“The claimant’s claim that the respondent has failed to accord the claimant’s investments fair and equitable treatment in accordance with international law, contrary to Article 1105 of NAFTA, is granted,” the panel ruled last month.

Police are now apparently probing whether Ontario government employees broke the law when they deleted documents related to the offshore wind project. A source told the Financial Post that Mars will answer police questions in Toronto next week.

So, a billion dollars to cancel two natural gas power plants, then a paltry $28 million that the federal has to pay, as it’s the NAFTA signatory (and the total bill could go up to $568 million or more, with nothing actually being built). As the old saying has it, pretty soon you’re talking real money.

H/T to Ken Mcgregor for the link.

November 26, 2013

Twenty-five years on, Canada has clearly changed

Filed under: Cancon, History, USA — Tags: , , , — Nicholas @ 10:23

Richard Anderson notes the 25th anniversary of an almost forgotten Canadian crisis:

From the perspective of a quarter century the whole thing is almost inexplicable. It isn’t just that everything turned out well. The oddness of that time is how worked up people got about a trade agreement. Seriously. It’s an international trade agreement. The Harper Tories have signed quite a few, including an important deal with the EU. It’s barely headline news. But way back then it was the beginning of the end of Canada, if the good and great of the Canadian Cultural Establishment were to be believed.

Adding more distance to the passage of time is the demographic revolution that has taken place since, a revolution kicked into high gear by Mulroney not Trudeau. The Canada of 1988 was a much whiter and far more WASPish place than it is today. The Canadian WASP is an odd creature. Genial to a fault, decent, hard working and subdued in manner and lifestyle. He does, however, have one terrible weakness: A paranoid fear of the United States.

The Punjabi, the Vietnamese and the Filipino immigrant could not tell a Loyalist from a lolipop. The strange psycho-drama that has consumed the Canadian elite since Simcoe landed is now, mostly, over. The new Canadians have no fear of the old enemy America. There are no intergenerational flashbacks to the Battle of Queenston Heights. The Americans are just the loud neighbour to the south. It is not entirely coincidental that free trade was at last brought to Canada by an Irish Catholic, supported by a phalanx of Quebecois. Neither group ever really feared America. Among them there was never that nagging sense of imminent cultural absorption.

June 25, 2012

If NAFTA was real free trade “it wouldn’t contain 22 chapters of rules and regulations”

Filed under: Cancon, Economics, Liberty, USA — Tags: , , , , , — Nicholas @ 00:03

Free trade is the way to go, if you want to benefit the consumer. Producers don’t benefit as much: it increases their competition and means that bad producers are more likely to go out of business. Protectionists always rely on the visible “damage” that free trade does to these bad producers and minimize or completely ignore the (larger) benefits to consumers.

Jesse Kline explains why moving toward freer trade will benefit most Canadians, and the drawbacks will be to those who are least able or least willing to face real competition:

Prime Minister Stephen Harper announced this week that Canada will join the Trans-Pacific Partnership (TPP) talks, along with he United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, Mexico and, we hope, Japan. Some say this will be a historic free trade deal that will extend the NAFTA zone into emerging Asian markets; others believe the United States is using the process to impose its own draconian copyright regime on its trading partners, while protecting key industries, such as auto manufacturers. The truth is probably somewhere in the middle.

The problem is that the agreement is being negotiated under a veil of heavy secrecy. And if rumours that the negotiated sections of the agreement already contain over 1,000 pages prove to be correct, it is certain that the TPP will not give us anything resembling real free trade. Indeed, the Canadian public has little idea about what we are getting ourselves into, or how much the government knew about what it was agreeing to. Based on a leaked chapter of the agreement, it looks as though we just signed up for an entirely new copyright regime, a mere hours after the government passed its own made-in-Canada solution.

To the government’s credit, it is simultaneously pursuing trade deals with the European Union and China. But in these times of global economic uncertainty, we need to see the benefits of trade sooner, rather than later. Free trade leads to higher standards of living, and benefits society through lower prices and increased variety of consumer goods; it forces domestic industries to be more efficient. Fortunately, there is another way to achieve these benefits: The Canadian government could open our borders to the world by unilaterally removing all our trade barriers.

April 4, 2012

The “Three Amigos” are not all that friendly at the moment

Filed under: Americas, Cancon, USA — Tags: , , , , , — Nicholas @ 10:56

A report on the “Three Amigos” meeting where President Barack Obama hosted President Felipe Calderon, and Prime Minister Stephen Harper at the White House:

Obama’s neglect of our nearest neighbors and biggest trade partners has created deteriorating relations, a sign of a president who’s out of touch with reality. Problems are emerging that aren’t being reported.

Fortunately, the Canadian and Mexican press told the real story. Canada’s National Post quoted former Canadian diplomat Colin Robertson as saying the North American Free Trade Agreement and the three-nation alliance it has fostered since 1994 have been so neglected they’re “on life support.”

Energy has become a searing rift between the U.S. and Canada and threatens to leave the U.S. without its top energy supplier.

The Winnipeg Free Press reported that Canadian Prime Minister Stephen Harper warned Obama the U.S. will have to pay market prices for its Canadian oil after Obama’s de facto veto of the Keystone XL pipeline. Canada is preparing to sell its oil to China.

Until now, NAFTA had shielded the U.S. from having to pay global prices for Canadian oil. That’s about to change.

Canada has also all but gone public about something trade watchers have known for a long time: that the U.S. has blocked Canada’s entry to the eight-way free trade agreement known as the Trans-Pacific Partnership, an alliance of the U.S., Australia, New Zealand, Vietnam, Malaysia, Peru, Chile, and Singapore. Both Canada and Mexico want to join and would benefit immensely.

So much for Canadian whingeing, right? Those snowback hosers are never happy. Relations with Mexico must be in better shape, yes? Uh, no:

Things were even worse, if you read the Mexican press accounts of the meeting.

Excelsior of Mexico City reported that President Felipe Calderon bitterly brought up Operation Fast and Furious, a U.S. government operation that permitted Mexican drug cartels to smuggle thousands of weapons into drug-war-torn Mexico. This blunder has wrought mayhem on Mexico and cost thousands of lives.

It’s fortunate for President Obama that the press is generally careful in their reporting … careful, that is, to avoid blaming Obama wherever possible.

Update: Ace has more on the unusually assertive Canadian position.

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