One of the reasons the new president-elect in the United States is generating so much nervousness around the globe is the fear that he is not connected to the realities of how the global economic system works.
For example, there is no such thing as a truly American car. Sure, there are cars with traditional U.S. names, but are they American in the sense of having been designed and manufactured in the U.S.?
Take Buick, a typical U.S. car made by General Motors. The largest concentration of Buicks that I have ever seen has been in the cities of China. These cars may have some U.S. components but could well have parts from almost anywhere else in the world. They probably contain some U.S. design elements or they may have been engineered in whole or in part in India. They were not shipped across the Pacific but put together in China where they have an excellent market. How American are they?
Back in the 1950s, American cars were made and largely sold in North America. German cars were made in Germany and Japanese cars were being manufactured in Japan. Now any car, regardless of the name on the grille, can be made anywhere out of parts from anywhere and sold anywhere. What is true of cars is increasingly true of just about all manufacturing.
The British are discovering this in the Brexit era. Their currency, the pound, has dropped. In the old world, this would have made their exports cheaper in the rest of the world and boosted their trade. In today’s connected world, it has stymied much manufacturing because of dependence on imported components which are now more expensive to buy with the lower pound.
In the last century, the U.S. was largely an independent economy, 90 percent self-sufficient and only 10 percent involving foreign trade. Now the U.S. is much more tied into the rest of the world. Trump has been advocating serious protectionist measures, like large tariffs on Chinese imports and destroying or drastically changing the North American Free Trade Agreement (NAFTA). Putting up such barriers to trade, far from helping the U.S. economy, is going to hobble it.
It is my hope that the realities of governance will intervene. It could be devastating for Canada should NAFTA be eliminated. In Canada, we know we are a trading nation. Roughly 40 percent of our economy is in the foreign sector of imports and exports and roughly 80 percent of that trade is with the United States. British Columbia’s trade is somewhat more diverse, but even B.C. relies on the U.S. for half its trade.
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Unfortunately, Canada does not have much influence on U.S. policies. Our prime minister has already said that he is amenable to reopening NAFTA, a statement which does not strengthen his bargaining position. But there are measures Canada can take to protect us from being blown over by U.S. protectionism. We can diversify our customer base. No longer should we have almost all our trading eggs in one basket.
Canada has already made one successful move in this direction with CETA, the comprehensive economic and trade agreement between Europe and Canada. Since major, multinational trade agreements involving the U.S. and both Atlantic and Pacific nations are unlikely to proceed, Canada is looking for separate trade agreements with counties like China and Japan. These will expand our markets not only for our resources, but also for high level manufactured goods and services. Demand for these could well grow as the U.S. becomes more difficult to do business with. One such high level service export is international education, which is beginning to see more interest.
As any businessperson knows, diversifying your customer base works. No longer is the whole enterprise put at risk should your main client disappear. After many decades with only one major customer, the lumber industry in British Columbia is beginning to diversify.
Since the great recession, the wood sector in B.C. has been selling about half its product in Asia and other non-U.S. markets. Now, the old softwood lumber agreement with the U.S. is unlikely to be renewed. This hurts, but it is not the lethal blow it would have been in the past. As Canada integrates more and more into the global economy, it will matter to us less and less that the United States withdraws.
Troy Media columnist Roslyn Kunin is a consulting economist and speaker.