The Truth About Canada (33 page)

Much of the growth of gross exports in the last decade reflected the increasing use of imported components, not higher value added exports. Value added exports, which include only inputs purchased in Canada are the key determinant of domestic output and jobs.

The two Statistics Canada economists show that the import content in our auto exports was 51 percent in 2004, in machinery and equipment exports it was 36 percent, and it was over 28 percent in industrial goods and consumer goods.
¹²
No exact current figures are available, but several reliable estimates suggest that 40 percent of Canada’s trade with the United States is intra-firm.

Turning again to our trade with the United States, in 2006 our merchandise trade surplus was $96.1-billion. But our deficit with the rest of the world set a record of $43.94-billion, up from $34.65 in 2004. Overall,
Canada had a merchandise trade surplus well below the record surplus of $70.66-billion in 2001. While Canada has a large perennial trade surplus with the United States, we have had a deficit with the rest of the world almost every year, with the exception of a small surplus in 1995.

Here’s something that will surprise a great many people. About two million Canadian jobs depend on our exports to the United States, while an estimated 5.2 million American jobs are dependent on their sales to Canada. Why the imbalance when we have such a large trade surplus? The answer is pretty simple. A very high proportion of our exports are non-labour-intensive resources or are finished products containing a high proportion of imported parts and components, while a very high proportion of U.S. exports to Canada are labour-intensive finished products originating in the United States.

In recent years, Canada has been the number one market for exports from 39 of the 50 U.S. states, and we were in the top three in another eight states. The United States sells more to Canada every year than it does to all the 25 EU countries put together, and Canada as a whole has been the number one export market for the United States since the end of the Second World War. U.S. exports to Canada represent 22.5 percent of all American exports.

Now for some completely irresponsible BS.

According to Frank McKenna, our former ambassador to the United States, our trade “relationship with the U.S. represents 40 percent of our gross domestic product.… We need to be respectful of it.”
¹³
Prominent Canadian businessman and former civil servant Paul Tellier has said that “45 percent of Canada’s economy is dependent on trade.” Allan Gotlieb, another former Canadian ambassador in Washington, says, “Almost 40 percent of Canadian income depends on our access to the U.S. market.”
Maclean’s
, in their November 27, 2006, issue, repeated a Conference Board of Canada claim that our trade with the United States accounts for 72 percent of GDP and warned that “all aspects of our domestic economy are linked to our trading relationships with other countries.… If our borders were shuttered to international trade … three-quarters of our economy would grind to a halt.”
Such claims range somewhere between pure garbage and total nonsense. The reality, supported by Statistics Canada research by some of their top people, places our net trade with the United States at some 20 to 23 percent of GDP. Moreover, to suggest that our borders might be shuttered is totally ridiculous considering the many millions of Americans whose income depends on their company’s exports to Canada and the ongoing, increasing U.S. demand for Canadian resources.

If you wish to read more about the ridiculous claims of McKenna, Tellier, Gotlieb, and the Conference Board (among many others), I suggest you look at the excellent work on the subject by Statistics Canada’s chief of current analysis, Philip Cross,
¹⁴
or at a copy of
Lies, Damned Lies and Trade Statistics: North American Integration and the Exaggeration of Canadian Exports
by economist Erin Weir.
¹⁵
In his first-class publication, Weir shows that

The notion that international exports account for nearly half of Canada’s economy significantly influences public-policy debates. However, the notion overstates the economic importance of trade flows by comparing gross exports, including a substantial amount of imported content, to value-added Gross Domestic Product (GDP), consisting only of Canadian content. The value of a product is counted in export statistics as many times as it crosses the border, but the value-added to it in Canada is counted only once toward GDP. Statistics Canada figures show that, in value-added terms, exports account for about a quarter of Canada’s economy.

And of course exports to the United States would then only be some 19 to 20 percent of GDP in sharp contrast to the ridiculous claims of the likes of BMO Capital Markets chief economist Sherry Cooper, Allan Gotlieb, Brian Mulroney, and Thomas d’Aquino, among others already mentioned. All of these people should know better than their inflated claims, and probably do know better. But as I have written elsewhere,
“An absence of facts to back their ideology has never bothered our Canadian Americanizers.”

Mind you, measuring trade as a percentage of GDP as a leading indication of the health of an economy is a mug’s game. Witness, for example, that Singapore has a trade-to-GDP percentage of over 450 percent. Hungary, the Netherlands, and Taiwan are well over 100 percent. The many prominent Canadian journalists, politicians, and business leaders who so often claim that 45 percent of the Canadian economy is dependent on our trade with the United States are badly misinformed and invariably go on to misinform the Canadian public.

Looking at our trade picture overall reveals some worrisome developments.

• Imports are rising much faster than exports, particularly imports from China, the EU, and Mexico.

• Trade balances are declining. The trade surplus for 2006 of just over over $5-billion was the smallest in seven years.

• Trade deficits with the rest of the world other than the United States are increasing.

• There is a new and serious declining trade balance in the auto trade.

• There is a decrease in our exports of finished products, and a growing dependency on exports of energy and resources.

In 2004, Canada’s export volumes of goods and services increased by 5.2 percent, but import volumes increased by 8.2 percent. In 2005, exports increased by only 2.1 percent, while imports increased by 7.1 percent. Then, in 2006, exports were up by 1.1 percent, but imports were up by 5.9 percent.
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It’s not a good trend.

30

GLOBALIZATION

INCREASING DOUBT AND RESISTANCE

I
f globalization simply means greater commercial intercourse and better communication between the peoples of the world, who can be opposed to it? But if it also means something quite undemocratic which has a profoundly negative impact on the quality of life, then it’s a different story.

A big change has taken place recently in how millions of people around the world look upon globalization. As every day goes by, the downsides of globalization are becoming more apparent, in the United States, in Europe, and in most developing countries. The prevailing right-wing global ideology is giving way to increasing doubt and resistance.

In the 1990s, officials from the U.S. Treasury Department, the International Monetary Fund, and the World Bank enthusiastically promoted lower trade barriers, deregulation, and the free flow of capital. But it’s now clear that their prescription hasn’t worked the way they claimed it would. In most countries, the gap between rich and poor has widened. More than two billion people still live on the equivalent of less than a dollar a day. The world’s poorest countries are increasingly convinced that the rich countries have their own priorities first and foremost on their agendas, and simply don’t care about the world in general.

Nobel prize winning economist Joseph E. Stiglitz has become an outspoken and articulate critic of our current concept of globalization. He
points to the increasing inequality in a host of countries after trade was liberalized. Earlier in this book, you saw evidence of the increasing inequality in Canada, beginning after the FTA came into effect.

In a 2005 book,
¹
Stiglitz and co-author Andrew Charlton argue that every developing country that went on to success initially protected its markets until it was ready to relax controls. They also argue that all World Trade Organization (WTO) members should commit to giving full access to the poorer developing countries. As former U.S. Secretary of Labor Robert B. Reich has written:

Free trade is already disproportionately benefiting the best educated and best connected. The wealthy are growing much wealthier, while the middle class is being squeezed.

Until gains are more widely shared — within richer countries as well as between richer and poorer — we can kiss any further round of trade liberalization good-bye.
²

Perhaps the tide first began to turn for globalization with the rather unexpected repudiation of the proposed Multilateral Agreement on Investment, which would have allowed foreign ownership and control to increase virtually unchecked. Perhaps it was when nations such as Malaysia began to stand up so successfully to the rigid, conservative orthodoxy of the International Monetary Fund. Perhaps it was the steady accumulation of data showing how the rich were getting much richer while many of the rest were either standing still or getting poorer. Perhaps it was the arrogant, doctrinaire faith of the proponents of globalization that produced the growing hostile reaction.

Certainly, the rejection of the referenda promoting even further European integration at the cost of yet more national sovereignty, plus the collapse of the Doha Round of the WTO talks, and also of George W. Bush’s proposed Free Trade Area of the Americas, are all clear indications of the trend John Ralston Saul describes in his excellent book
The Collapse of Globalism
.
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For Saul,

The very idea of globalization is now slipping away.… Leading figures who once said nation-states should be subject to economic forces now say they should be reinforced.… Prophets of globalization who said, “Privatize, privatize, privatize,” now say they were wrong because the national rule of law is more important.

Increasingly strong nation-states like India and Brazil are challenging the received wisdom of global economics. Pharmaceutical transnationals find themselves ducking and weaving to avoid citizen movements.

The conviction that citizens have such powers lies at the heart of the idea of civilization as a shared project. And the more people are confident that there are real choices, the more they want to vote … the more they want to become involved in society.

In recent years, the tide has turned quite dramatically. More and more developing nations are thinking of globalization as Western imperialism that produces forced privatization, more foreign ownership, more foreign control, mandatory cuts in social spending, and so on.

According to the 2003 United Nations
Human Development Report
, at the end of the 1990s, 54 countries were poorer than they were at the start of the decade. And the countries that were much better off, such as India and China, had very protected economies.

Many think that globalization is in fact working exactly the way corporate leaders intended. Workers’ share of GDP is now lower than it’s been in 30 years, and real wages have been, for the most part, stagnant or even decreasing. The real weekly earnings of a median American worker are down by 4 percent over the five years to 2006. At the same time, corporate profits, as we have already seen, are at or close to all-time highs as a percentage of GDP. In the United States, corporate profits almost doubled between 2001 and 2006. Meanwhile, the top 1 percent of American earners make about 16 percent of all U.S. income, double the share they made in 1980.

American economist Jeff Faux says that, with globalization, capital has left labour in the dust, creating a “global class war” between a “global governing class” and all others. Michael Hirst, senior editor at
Newsweek’s
Washington bureau, writes:

Faux is clearly correct that the balance of power between labor and capital has shifted dramatically.… Wall Street has the whip hand over corporate performance … the gap between executive and worker pay has widened to record levels [and] even incompetent executives enjoy golden parachutes while high performing employees are laid off without apology.
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Meanwhile, “the American labor movement is a pitiful shadow of its former self, the victim of a ‘China price’ set half a world away by a seemingly limitless supply of cheap labor.”
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As Noam Chomsky has pointed out, “Globalization used in a neutral sense just means ‘international integration.’ ” And who could object to more of that, if it brought greater freedom and higher standards of living, just as who could object to “free trade” if it had a similar result? But Chomsky points out that the way globalization has evolved has meant the promotion of the “rights of investors, lenders, corporations, banks, financial institutions and so on. The people who now pretty much own the world have distorted the term ‘globalization’ to their extremely doctrinaire position … so there’s even more concentrated wealth and power.”
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A 2006 study by Gene Grossman and Esteban Rossi-Hansberg of Princeton University, shows that positive effects of globalization in terms of productivity were not enough to offset the downward impact on the wages of workers. For
The Economist
,