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The newly re-elected President of the United States, Donald Trump, is expected to deliver on his promise to impose tariffs on Canada, Mexico, and China to combat the "extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl, [which] constitutes a national emergency."
While these tariffs have been temporarily lifted and delayed for 30 days, Canada may still face a 25% tariff on all export goods to the U.S., and a 10% tariff on all energy exports. According to mainstream media, these tariffs signal the beginning of a "trade war" and a "rupture" between the United States and Canada, that has completely come out of nowhere.
Just how "out of nowhere" are these tariffs? What ever happened to free trade? A deeper investigation will reveal just how Canada arrived at this moment, and why our own ruling elites are in part responsible.
Deal of the Century: Canadian Sovereignty
The foundations of Canada's export economy were laid in the post-WWII era. The United States had abandoned high-tariff protectionist economic policies of the 1920s–1930s. The General Agreement on Trades and Tariffs (GATT), of which Canada was one of 23 founding member states in 1947, marked the beginning of tariff reduction and adoption of free trade, mostly for Western European powers and their colonies and North America.
The post-war prosperity in Canada was funded by major investment from U.S.-based firms. The lowering of tariffs and increased investment from the United States during this period made our southern neighbour an ideal market for Canadian raw materials.
Come the 1988 "Free Trade Election" called by Prime Minister Brian Mulroney of the Progressive Conservatives, Canadians took to the polls to decide on whether Canada should adopt a free trade agreement with the United States, which sought to gain near-limitless access to Canadian natural resources. The Mulroney Conservatives, who supported the Canada–United States Free Trade Agreement (CUFTA) won the election with 50% of the seats, but only 40% of the popular vote, or 30% of the eligible voting population.
The two parties that campaigned against CUFTA, the Liberal Party and New Democratic Party, both argued that free trade with the United States would "turn Canada into the 51st State." Despite their initial opposition to the old Canada–U.S. agreement and to the North American Free Trade Agreement (NAFTA), the Liberals ratified NAFTA after coming into power in 1993.
Prior to CUFTA, exports made up 25% of Canada's GDP. After the adoption of both the CUFTA and NAFTA, the contribution from exports to the Canadian GDP rose to over 40%, peaking at 44% in 2000.
Today, 25.1% of Canada's GDP is exclusively driven by exports to the United States–in other words, Canadian economic policy for almost the last four decades has been reliance on American industry and markets for Canadian materials.
Farcical Trade
While Canada is reliant on exports to the United States, agreements such as NAFTA at the very least guaranteed that Canada could keep its economy afloat—until the U.S. decides that free trade is no longer advantageous.
During the first Trump presidency, the White House initiated the renegotiation of NAFTA into the Canada–United States–Mexico Agreement (CUSMA). While CUSMA retained most of NAFTA's provisions, it was adopted on the heels of U.S. threats to nullify free trade in North America.
In March of 2018, the Trump government also implemented tariffs on Canadian steel and aluminum exports: 25% and 10%, respectively.
CUSMA was ratified in 2020, and should have served as a warning of the potential consequences of overreliance on American markets. Despite the brazen disregard for a ratified free trade agreement by the American government when it became inconvenient, Canadian politicians and business continued to rely on the empty promise of "free trade."
Today, working Canadians are yet again staring down the threat of economy-shattering tariffs by "our greatest ally and trading partner"—an ally that has decided that existing agreements are null-and-void if they can flex their economic muscle and demonstrate their domination of our economy.
Supply Chain Chaos Over Self-Sufficiency
Canada is heavily reliant on trade with the U.S. Our economy has been organized for decades around the provision of energy resources and raw materials to our southern neighbour. This is most obvious in the realm of energy, as Canadian oil makes up 52% of the United States' total oil imports.
According to economist Jim Stanford of the Centre for Future Work, "The whole infrastructure in the continental energy system is designed to basically take oil from Canada and pump it down to American refineries. And there isn't a whole lot of other places for us to sell it."
Canada's largest export is oil, and its biggest consumer is the U.S. Despite Canada's vast oil reserves, it only has 16 operating oil refineries. In comparison, the U.S. has 132 operating oil refineries, some of which refine almost entirely Canadian crude oil. Refined oil products, such as fuel, are then resold in Canadian markets.
A similar process exists for steel. The United States is the largest importer of Canadian steel, which is in turn used in manufacturing of commodities to be sold on Canadian markets or components to be further processed in Canada, as in auto manufacturing.
This chaotic supply chain is justified by free trade proponents as being "cheaper." In other words, it is cheaper to ship our materials instead of building our own industry, as Canada lacks the manufacturing infrastructure to process these materials on its own.
What is not often mentioned is that the ability to quickly offload natural resources to a manufacturing powerhouse does much more to benefit wealthy families such as the Irvings, the Edwards and the Zekelmans, than it does to develop self-sufficient Canadian infrastructure and industry. It may even come at the cost of Canadian sovereignty.
Uniquely, Canada also sweetens the deal for the U.S. as Canada allows foreign and private investment in its oil sector. American (and other countries') oil companies and financial firms, such as ExxonMobil or BlackRock, can own substantial or even majority stakes in the Canadian oil sector.
Of course, when faced with the question of how to handle Canada's swathes of natural resources, our politicians chose to help both American and Canadian billionaires make a quick buck, instead of developing an economy to serve the average Canadian.
Canadian Workers Left to Rot
The Canadian Centre for Policy Alternatives (CCPA) 2003 report on CUFTA and NAFTA states, "The main economic rationale for free trade, however, was that increases in two-way trade would boost Canadian productivity, and thus lead to higher wages and rising living standards."
Evidently, the opposite has occurred.
The shift to an export-oriented economy that was facilitated by CUFTA/NAFTA resulted in the stagnation of real-wage increases (wage increases adjusted for inflation). Post CUFTA, real wage increases in Canada were 0.2%, while prior to CUFTA, they were 0.5%.
Furthermore, while free trade increased industry productivity, in Mexico, the U.S., and Canada, workers saw very little of the wealth produced from this productivity, which was reaped by the owners and bosses.
Instead of prosperity, workers in Canada's manufacturing industry saw their jobs disappear. According to the CCPA "in the years prior to CUFTA, manufacturing productivity in Canada stood at 83% of the U.S. level. By 2000, it had dropped to only 65%."
Between 2004 and 2008, Canada saw the loss of 322,000 manufacturing jobs. One in seven workers had been rendered unemployed by manufacturing being outsourced, and the Canadian working class as a whole saw its power on shop floors weakened, and real wages stagnate.
The Legacy of "Free Trade"
Free trade came at a cost that was entirely paid for by workers: integrating Canadian resources exports into American manufacturing caused Canada to be almost entirely reliant on American markets to sustain our economy. This dependence is now being exploited by the U.S., who have decided "free trade" is only free when it suits them.
While the Canadian resource oligarchs were getting rich off selling to the U.S., Canadians lost their jobs, and Canada lost any semblance of economic sovereignty. It is no wonder the sitting U.S. president can openly strut about, calling Canada "the 51st state."