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Pitchfork Economics with Nick Hanauer
North of the Border: A Canadian Perspective on the Free Trade Era (with Luke Savage)
00:30:42
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The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory. The last five decades of trickle down economics haven't worked. But what's the alternative? Middle out economics is the answer because the middle class is the source of growth, not its consequence. That's right. This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the.
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Economy from the middle out.
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A
Welcome to the show. Hey Pitchfork listeners. Goldie here. We've talked a lot on the POD about free trade and how it's shaped the American economy. But what about our neighbors to the north? You know, what President Trump calls our 51st state? In this episode, producer Freddy Das digs into the question with journalist Luke Savage, who explains how NAFTA and its successors have locked Canada into a trade model that serves corporations first and workers last. Here's Freddie's conversation with Luke.
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I'm Luke Savage, I'm a Toronto based writer, columnist at Jacobin magazine and I blog on subst.
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Luke W. Savage well, let's start with the big picture. What was the US Canada trade relationship like before NAFTA and how did it change afterward?
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B
So in Canada, there is a deep history of the Canada US Trade relationship really shaping the Canadian identity and being a significant issue, very controversial issue in Canadian politics going right back to the 19th century. So when Canada's created in 1867, John A. Macdonald, who's the country's first prime minister, he was very determined to establish a really solid tariff barrier between Canada and the United States. And there were a number of reasons for that. One was that the kind of loyalist faction that was in charge of Canada, they really regarded themselves as British. So they were pretty suspicious of the American experiment. But also the eastern parts of Canada had, they were more densely populated, they had more industry. And so, so as the country became more settled by, you know, Europeans, that is, in the western parts of the country, it was understood that in order to really have a country at all, there was going to need to be domestic infrastructure created in an east to west fashion and commercial relationships established in an east to west fashion because otherwise the pull of the United States was going to direct all the energy north to south. And there was an understanding that, you know, Canada wasn't really going to be able to establish itself as an independent nation, if those were the terms. Now there was a, there was support for free trade in Canada in the 19th century. The 1891 federal election in Canada was actually fought largely on this issue with MacDonald and the Conservatives campaigning on tariffs and Wilfrid Laurier, Liberal, running on free trade. He was defeated, although he did in 1911, stake another election after he'd become prime minister, on a free trade agreement with President William Howard Taft. And he was defeated again, this time by the Conservative leader, Robert Borden. So that's just a very potted history, but it gives you a sense of how significant the Canada U.S. trade relationship has been just kind of within Canada. And it's always touched on, I think, more than just issues of commerce and economic policy. It's also touched on deeper and I think, more emotional questions or more emotive questions of national identity. Finally, throughout the 20th century, there is a kind of gradual liberalization of the trade relationship that. That happens. And, you know, that's. There's basically a through line of that right up to the 1980s when the Canada U.S. free Trade Agreement, the predecessor to NAFTA, is negotiated. And throughout the 60s, 70s and 80s, free trade. The issue of free trade with the United States, the issue of American ownership of Canadian resources, the extent of American investment in Canada, all of these things are very, very live political issues. And the country has really 30 or so years of pretty protracted debate about, you know, what Canada's relationship with the United States should be, particularly when it comes to the question of trade.
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So there really was a deep public conversation about the trade agreements that have been inked between the US And Canada. And would you say that those conversations were more controversial or was it more of a consensus? Like, were people mostly because you're saying it's kind of not just finance and commerce, it was also a motive, like some of it was about how much American investment would be here and American industry owning things in Canada. Would you say it was more controversial or more consensus?
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Well, I would basically chart a, you know, I think you can chart a trajectory where from the 50s and 60s through to the 1980s, initially, there was a broader consensus on the need for some restrictions, you know, a certain degree of economic protectionism vis a vis the United States, that kind of thing. And I think by the end of the 1970s, things begin to transform. There's, of course, a broader global economic crisis or a series of crises happening during the 1970s. And so by the 1980s, the Conservative Party and kind of the political right in Canada, they're the government by this point. They are kind of. They are pushing quite aggressively. Prime Minister Brian Mulroney is pushing with President Reagan, comprehensive free trade agreement. So there was, I think, growing support for free trade in Canada from parts of the business community. As well. But the election in 1988, the federal election, is essentially fought on the issue of free trade. And there really is majority opposition to free trade. It's a very, very controversial policy throughout much of the country. There was a bit more support for it in Quebec, which is interesting. But the conservatives who were campaigning on pro free trade policy, they did not win a majority of votes, but they did win a majority of seats under Canada's electoral system. So that effectively consolidated free trade, which then was locked in with a negotiation of NAFTA a few years later. So all of this was very controversial, very combative, fiercely debated as it was happening. But I think after free trade was consolidated through nafta, it sort of fell off as a public conversation. Canada's economy was really locked into these agreements, was not an issue that people, critics were able to mobilize the same kind of opposition to free trade as perhaps they had previously. And of course, all of that has changed more recently with the trade war initiated by President Trump, which has made many of these issues live again for the first time in several decades.
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So looking back, how has NAFTA and later the USMCA shaped Canada's economy and sovereignty? What do you think the trade offs have been and who's benefited or have all the parties in the agreement benefited in some way?
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Well, I think the principal beneficiaries have really been corporations and especially, but not exclusively U.S. multinationals. I mean, there has been a lot of economic growth since the 1990s, you know, in both Canada and the United States. I don't think anyone would dispute that. But I think both countries have become, since, since the advent of free trade, more stratified, more unequal. That's very much been the case in Canada. And so the free trade era, if you want, has really gone hand in hand in Canada with the era of neoliberalism. Countries, as I said, become much less equal. We have a much more service based and consumption based kind of economy, more financialized kind of economy. There have been a lot of cuts to social assistance, to all kinds of public programs, elimination of the national housing program in the mid-1990s and so on. And obviously correlation doesn't always equal causation. There is a clear relationship, I think, between the kinds of changes we've seen brought about by free trade and the kinds of things I just listed when it comes to Canada's economy itself. I mean, Canada has always been a very export dependent economy. Canada is a country that's very rich in natural resources and historically has tended to Export those resources in raw form to other countries, especially the United States, you know, as opposed to having a sort of value added economy in which these kind of staple goods are, you know, extracted here and also refined or manufactured here. That's tended to not be the way Canada has gone about things for a variety of reasons. And free trade has really locked all of that in On a more basic level. It has overwhelmingly prioritized corporate interests and you know, both in Canada, the United States, but here that, that has placed the Canada Free Trade Agreement, placed certain restrictions on the economic policies that Canadian governments, federal and provincial, were able to legislate. Because under the agreement, governments, increasingly federal and provincial governments in Canada had to demonstrate that the policies they were implementing, regulatory policies and so on, they had to demonstrate that those were not going to be excessively burdensome on corporations and that kind of thing. The democratic sovereignty, the democratic scope the Canadian governments have had to legislate in the public good, I think has been significantly narrowed. There are also in the original Canada, U.S. free Trade Agreement and in a variety of forms in its successors as well. You know, there's been a few different incarnations. Now, you know, there are provisions that encourage or incentivize the privatization of public programs and services. Private companies are able to sue governments for doing various things that they allege interfere with their profits, that sort of thing. And so this has really changed in some ways the way that Canada is governed in quite important ways and just in a less abstract sense on the ground. There have been quite profound changes in many parts of Canada that used to have more manufacturing, used to have more jobs, often very good jobs, well paid jobs, unionized jobs in manufacturing. Those have increasingly been been more scarce.
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US Government often treats trade like a zero sum game. How can a country like Canada engage in trade with a much larger partner without getting steamrolled? What would a more balanced approach look like?
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Well, I think that some of the events earlier this year, just from a Canadian perspective, really reveal the extent to which that Canada, even though it's, you know, its economy is, you know, I think the US economy is more than 10 times the size of Canada. You know, obviously Canada is very dependent on its economic relationship with the United States. But I think some of the things we saw happen in January, February, March, I think they really reveal the extent to which Canada has perhaps more leverage in these kinds of negotiations than maybe some of its leaders have. I think in particular, the U.S. dependence on Canadian oil potentially gives Canadian governments a lot of leverage in the kind of elaborate dance we Saw in the first part of the year where Donald Trump would sort of threaten annexation and threaten these big tariff barriers on steel and aluminum imports in the automotive sector and so on, we saw that Canadian governments, federal and provincial, were often able to respond. For example, Ontario threatened to cut off much of the electricity or all of the electricity that it provides to American consumers in upstate New York. And we actually saw Trump change his behavior fairly quickly, often when that happened. So I think that's something to take note of in this situation. But I also think, you know, it's important to include here the fact that there is a history of managed trade in the history of Canada, US Trade that is constructive and that I think we can learn from. So you're probably going to ask me about the auto sector in a bit, so I don't want to preempt that too much. But the auto sector is one very clear example, in a sense, people on both sides of the border getting something through an agreement of managed trade, as opposed to what's called free trade. So in 1965, there's something called the auto pact that's signed by the Canadian prime minister at the time, Lester B. Pearson and President Lyndon Johnson. You know, essentially, it allows US Automakers like General Motors to operate in Canada to. To a greater extent than they had been. It also allows them to, you know, sell specific models to Canadian consumers which they hadn't doing as much of before. So after the agreement, Canadians are actually buying more of these cars, some. Some of which are actually manufactured in the United States. But there are, you know, certain guarantees that the automakers are forced to give Canada and Canadian workers. Thousands of jobs are created through this. There's, you know, higher wages for Canadian workers in, you know, auto manufacturing. So this has a huge impact in places like Windsor or in Oshawa, where there are a lot of automotive jobs. And later, actually in the 1980s, when the big automakers are trying to impose and successfully impose wage restraint and wage cuts on US Auto workers because of the auto pact, Canadian workers are actually able to resist some of that because they have certain guarantees and certain protections through that agreement. So, you know, that's just, you know, it's one industry, it's one sector, but it gives a sense of the alternatives that are perhaps available here. And, you know, it's just not always the case that trade agreements between Canada and the United States have to take these really unequal forms. There are ways that they can be more socially beneficial on both sides of the border and more beneficial from the Canadian perspective. Which is notable and important here because of course, Canada on the whole has less bargaining power and less economic clout, just as a much smaller country than the United states.
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So that 1965 Auto Pact is, is probably why the auto industry is like at the center of all of these trade debates.
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Yeah, that's exactly right. I mean, the auto industry is hugely important, obviously in both countries. There's no doubt that it's, you know, free trade killed the auto pact. Right. So there's been significant, a significant loss of jobs in these parts of southwestern Ontario in particular that, that I've mentioned. But, but yeah, the auto industry, as I've said, really was one place where a system of managed trade was, you know, gives us a glimpse at what at least one kind of alternative trade negotiation might look like.
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So I know one of the things that in American media there often lots of conversation about the impacts on, you know, rural America and former industrial towns and manufacturing towns. But I'm curious, has Canada experienced any deindustrialization or other kinds of economic disruption as a result of global or free trade? And how do you think that shaped Canadian politics, especially in regions hit hardest by those changes?
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Yeah, I mean, it's, it's absolutely the case that there have been quite significant deindustrialization in Canada since the 1980s and that it's had a really profound social impact, particularly, but not exclusively, but particularly in places that had historically a lot of manufacturing. So I grew up in southwestern Ontario, which for decades was, or longer than decades really was the center of manufacturing or, you know, the greatest hub of manufacturing in the country. And I even witnessed changes. You know, I saw them throughout my childhood. I saw places that had had significant amount of manufacturing. I saw them change as I was growing up in the 1990s, you particularly, and especially in automotive towns. I've named a few of them Windsor, which is in sort of the, the southwestern most part of Ontario, and Oshawa, which is a bit east of Toronto. Those places still have auto plants, but many, many fewer jobs than there used to be. And of course that's had very significant impact for the residents of those places. But this has really been, it's really been a general phenomenon everywhere. So I went to high school in two separate towns and you could see it play out in both. Stratford, Ontario, which used to have a lot of furniture manufacturing, ball bearings, used to have a major rail construction and reply yard. I mean, that last one, it still sits as a giant derelict site in the center of the town. Hamilton, Ontario, where I did grade 11 and 12, still big steel mills and that sort of thing, but again many fewer jobs than there used to be. And that's as a really direct result of free trade. So yeah, there have been very significant, there's been a very significant social impact because of these free trade agreements. And I suppose some people, someone who disagreed with me, might say that what I'm describing is just what economic change looks like. It's just what happens. You know, economic change is inherently disruptive. And you know, I suppose there might be particular instances, narrow instances in which that's the case. But I think when you look at these erstwhile manufacturing heartlands, there is a very direct relationship between the advent of free trade and the transformation of these local economies and kind of more broadly the transformation of the Canadian economy, like the US Economy into something that is increasingly post industrial, that is increasingly service based, that increasingly gives priority to the stimulation of consumer spending and to consumption over other things and where corporate interests, through both domestic government policies and these trade agreements are given priority in all kinds of areas over the public interest. So the consequences and the implications have really been quite significant.
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So I just going to go back to something you mentioned a bit ago, the role of large US Corporations. I think you said they were one of the primary beneficiaries of NAFTA and later the usmca. So what role have these large corporations like Walmart and others played not just in shaping Canada's economy in the labor market, but in influencing trade policy itself. How does corporate power factor into the U.S. canada trade relationship beyond just government to government negotiations?
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Let me take the second of those first. I mean large US Companies have been at the vanguard of lobbying for the kinds of provisions, they very aggressively lobbied for the kinds of provisions that have defined these trade agreements. In particular, I don't think they've, they've come up yet, but in particular the investor state dispute mechanisms which have been rolled back in the more recent In Kuzma, the 2017 renegotiated agreement, but which were part and parcel of both NAFTA and the Canada U.S. free Trade Agreement. So these are supranational mechanisms that supersede the power of elected governments and from the Canadian point of view have tended to privilege the interests of, of U.S. corporations. The softwood Lumber case, for example, was a really high profile case of that happening here in Canada. But just on a very basic level, the provisions of the agreements themselves have in many cases been directly lobbied for by big US companies. And they've done that for reasons of Pretty narrow self interest. So you asked about the, the role that US Companies have played in the Canadian economy themselves. I mean, I'll give you another example that comes to mind from my own childhood. When I was growing up near a town called Woodstock in southwestern Ontario, the sort of big local superstore was called Woolco. And I think they had over over 100 stores throughout Canada. And in 1994, Walmart came to Canada. So this is, you know, coming right on the heels of the Free Trade Agreement, coming right on the heels of nafta. Walmart acquires all of Wilco's stores. And of course American listeners will be very familiar with what happens when a Walmart moves into your town or your community. Walmart is, I believe, still one of the largest private sector employers in Canada. I believe that's also the case in the United States. And of course Walmart, by virtue of its size and by virtue of its business model, you know, it tends to lower employment standards wherever it goes. It operates on the basis of a low wage model. You know, it is very aggressive about fighting unionization efforts and that kind of thing. So it puts a downward pressure on wages and on labor standards wherever it operates. And that's happened in Canada much as it's happened in the United States. And there have been examples, you know, one high profile example in Quebec, I believe in the mid-2000s, where there was a successful organizing drive at a Walmart store somewhere in Quebec and Walmart simply closed the store. And everything I've just told you, everything I've just described is the example of just one big American retailer operating in Canada. So many more examples of that kind to be found. The Walmart, you know, for, for obvious reasons is, is one of the most significant.
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So what would a fair, resilient trade relationship between Canada and the US Actually look like and what changes would make the biggest difference for working people in both countries?
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Well, I guess I'll, I'll give an maybe unhelpfully broad answer here, but I basically think we need a comprehensively different species of international agreement when it comes to trade. And you know, that's speaking generally, but also, you know, particularly when it comes to the Canada, U.S. trade relationship. I mean, Canada and the United States, for all kinds of reasons, you know, the foremost among them being just how close they are geographically. Of course they're going to have a commercial relationship, of course they're going to have a trade relationship. And you know, it's always going to be very significant to the economies of both countries. The real Question. The fundamental question is what are the terms of that relationship going to be? And over the past few decades, what we've seen is the construction of a massive legal and political infrastructure that has been built up in North America. We haven't talked about Mexico much, but of course this all applies to Mexico as well. A massive infrastructure has been set up to govern commerce, continental commerce and global commerce as well as that is premised on the idea that profit maximization for private shareholders is really the principle upon which all of our economic relationships and trade relationships should be based. And if we can construct trade agreements that way, I see no reason why we can't in a sense do the reverse. You know, I think we could simply negotiate international trade agreements, create international trade agreements that don't privilege the interests of corporations, right. That don't have built in these investor state dispute mechanisms that supersede the power of elected officials to litigate disputes and that don't have these kinds of provisions that restrict the power of elected officials to legislate in the public good. So I think we could roll those sorts of things back. We could not have those sorts of things in our trade agreements, but I also think we could insert provisions that instead of privileging the interests of private investors, instead of privileging the kinds of things that, as we've been saying, companies like Walmart and, you know, a whole bunch of Canadian corporations as well have lobbied for. New agreements could contain provisions that consider the social impact or potential social impact of trade policies on, on communities on both sides of the border, companies hoping to invest, you know, from, from one side of the border to another. They could have to demonstrate that, you know, the investments meet certain criteria or that they'll operate within certain boundaries. You know, once they're operating in the neighboring country, priority perhaps in the trade relationship could be given to firms that, you know, firms could be forced to meet certain criteria or they could be, you know, they could be advantaged if they meet certain criteria when it comes to trade. So, you know, if they have a history of union busting, for example, if they contribute significantly to environmental degradation, you know, and so on, there could be restrictions placed on what they're allowed to do and the extent of the investment that they're allowed to make, you know, across the border. And, you know, I realize that all that probably sounds somewhat utopian and there's no doubt that it would require a very significant political lift to achieve. But just in the abstract, if we can design agreements that are in the interests of corporations and Investors, I really see no reason in principle why we couldn't design them with broader social interests in mind, with broader public and labor interests in mind as well. And I really don't see why, just to get even more utopian about it, why workers themselves, you know, through perhaps trade unions and other organizations, you know, why they shouldn't have institutions that exercise considerable, you know, power when it comes to continental trade. You know, I'd love to see US and Canadian and Mexican workers be able to operate through democratic structures, you know, perhaps nationally based democratic structures, perhaps internationally based democratic structures that allow them to operate as a bloc during trade negotiations. All of these things, I guess, in light of what we've experienced for the past 30 or 40 years, probably sound quite pie in the sky. But I certainly don't think they're impossible. And I think they're all important things to keep in mind if we're trying to consider, particularly in a moment like this, what a more egalitarian and labor friendly on both sides of the border kind of trade partnership might look like.
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So if you could wave a magic wand and you had no political constraints and you could redesign the trade relationship between the United States and Canada in a way that actually serves working people, what would be the first thing you'd change? So you've got all the power.
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I would renegotiate the agreement from the bottom up, if that's the right expression. I would completely reimagine the agreement quite comprehensive, so that it perhaps conformed to the principles that I just laid out in my previous answer. In fact, I said so much just now to your previous question, I'm not really sure I have much more to add here, but really I just like to see to redesign these agreements and have a much more worker friendly and socially beneficial kind of trade relationship. And I think having that codified in something as important as a trade agreement between two economies the size of the United States and Canada, and of course Mexico as well. Ideally, I think if North America could institutionalize a trade agreement like that as an alternative to the sorts of trade agreements we've tended to, we've become familiar with in the era of globalization, I think that would have a very significant global impact and I think it would probably end up benefiting workers and communities throughout the entire world.
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Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to follow, rate and review us wherever you get your podcasts. Find us on other platforms like Twitter, Facebook, Instagram and Threads. Itchfork Economics. Nick's on Twitter and Facebook as well. Ickhanhauer for more content from us, you can subscribe to our weekly newsletter, the Pitch over on Substack. And for links to everything we just mentioned, plus transcripts and more, visit our website, Pitchfork economics.com as always from our team at Civic Ventures, thanks for listening. See you next week.