Canada sells three-quarters of its goods to one customer, and that customer is the US. In 2018, according to Global Affairs Canada’s Canada’s State of Trade 2019, 75 per cent of Canadian merchandise exports went to the United States: C$433 billion of a C$585 billion total, the same share as in 1990. Pierre Trudeau told the National Press Club in Washington on March 25, 1969: “Living next to you is, in some ways, like sleeping with an elephant… one is affected by every twitch and grunt.” Under U.S. President Donald Trump, the elephant is awake and throwing its weight around.
With this waking elephant, what is Canada to do? Geography rules out leaving, and prudence rules out the status quo. The hard truth is that Canada needs to urgently diversify its trade, and it must find willing partners to do so. Canada should look at CANZUK.
CANZUK (Canada, Australia, New Zealand, United Kingdom) is the group of Commonwealth nations with centuries-old ties forged through history, shared governance, and language. A grand treaty with CANZUK nations, covering trade, the movement of people, and security co-operation, would catalyze nearly 5% of world GDP and nearly 2% of the world's population and would create a trading bloc nearly half the size of the Eurozone. CANZUK will never replace the American market, but it will provide it with options with reliable peers.
Canada has geared its economy to continental free-trade assumptions for roughly 30 years. Starting with the Canada–U.S. Free Trade Agreement in 1989, and the North American Free Trade Agreement (NAFTA) in 1994, the special economic relationship between Ottawa and Washington seemed to move in only one direction, forward. It had escaped the scrutiny of isolationist and nationalist governments and became the bedrock on which the North American economy was built. Then, the United States applied its Section 232 tariffs on steel and aluminum to Canada from June 1, 2018, in the middle of NAFTA renegotiations. After much rhetoric and negotiation, the new agreement (CUSMA/USMCA) was signed on Nov. 30, 2018. The new agreement is set to be reviewed in 2026, and regardless of who is in the White House, the United States has shown that the elephant will hold its continental partners hostage if it feels it can extract better terms.
The previous Harper government understood the danger of American overreliance. Under Prime Minister Stephen Harper, Canada signed Free Trade Agreements with 10 countries, and Foreign Investment Agreements with 25, more than any other government in Canadian history. This included CETA, the Canada–EU agreement (in provisional application on Sept. 21, 2017), and the CPTPP, which entered into force for Canada, Australia, Japan, Mexico, New Zealand, and Singapore on Dec. 30, 2018. These agreements set Canada on the right trajectory, but government support is still required for Canadian business to adequately leverage access to these new markets.
At the same time, we must reject the notion that aligning ourselves with another hegemonic challenger, like China, is a viable refuge. Documented practices of Chinese state technology transfer and intellectual property theft demonstrate the danger of swapping an unreliable trading partner in Washington for one in Beijing. It makes the case for a new alliance of peers.
The partners are willing. The United Kingdom left the European Union and is in a transition period through Dec. 31, 2020. In his Greenwich speech on Feb. 3, British Prime Minister Boris Johnson promised to engage “with old friends and partners,” naming Australia, New Zealand, and Canada, “on whom we deliberately turned our backs in the early 1970s.” Australia has had a U.S. free-trade agreement since Jan. 1, 2005, yet China is its largest goods-export market, according to DFAT. New Zealand has no comparable American deal, and Stats NZ reports China as its top trading partner for 2019. Winston Peters, now deputy prime minister, proposed “Closer Commonwealth Economic Relations” in a Feb. 24, 2016, speech, and opposition leader Simon Bridges told 1 News on Sept. 27, 2019: “We support a free movement deal.”
CANZUK International, the advocacy group campaigning for the idea, ran its own poll from Jan. 1 to March 31, 2018, among 13,688 respondents. Support for reciprocal free movement stood at 82 per cent in New Zealand, 76 per cent in Canada, 73 per cent in Australia, and 68 per cent in Britain.
The strongest case against CANZUK comes from the arithmetic of international trade. The gravity model of trade holds that trade rises with economic size and falls with distance, and Canada’s partners sit an ocean or two away. Whatever Britain, Australia, and New Zealand buy from Canada comes out of the quarter of exports not already heading southward. Srdjan Vucetic, writing in iPolitics in 2017, noted that geography has historically prevailed over preference and that the CANZUK case lacked serious cost-benefit analysis. Duncan Bell has argued that CANZUK is a post-Brexit fantasy, rooted in imperial ideas.
Canada has tried this once. The Imperial Economic Conference met in Ottawa from July 21 to Aug. 20, 1932, with Prime Minister R.B. Bennett as host and chairman, and produced bilateral Ottawa Agreements setting mutual tariff preferences among Britain and the Dominions. The Canada–U.K. agreement was signed on Aug. 20, and Westminster passed the Ottawa Agreements Act 1932. While Imperial Preference was not abolished in 1945, the United States pressed for non-discrimination after the war, and under the GATT’s most-favoured-nation rule new preferences and wider margins were barred while existing ones were grandfathered, but left to erode over decades. After taking office in 1957, John Diefenbaker floated diverting Canadian imports from the United States to Britain, but no renewed preference system followed. Britain’s entry into the European Economic Community (opposed by several Commonwealth governments, especially Australia and New Zealand) finished the work.
In 1932, as now, familiar partners scattered across oceans are answering an unreliable trading world by turning to one another. Bennett’s system was a tariff wall around a British hub, built to discriminate against outsiders, which is why a multilateral rule could squeeze it. Today Britain is the party seeking partners, and three of the four countries already trade under the CPTPP. Preference failed because it asked sentiment to overrule geography on the price of goods.
CANZUK cannot replace the American market, but it provides Canada with options for labour mobility and enterprise expansion. Ottawa should table a mobility and trade framework with London before the EU transition period ends, and invite Canberra and Wellington, already CPTPP partners, into the mobility agreement. With CANZUK, the elephant will still be next door, but Canada can stop holding its breath every time it stirs.
