This article for Policy is adapted from Colin Robertson’s submission to the House of Commons Standing Committee on International Trade of December 13, 2022. 

Colin Robertson

December 14, 2022

In the fall of 2005, I was leading our advocacy team at the Canadian embassy in Washington. Softwood lumber was a top priority. Our ambassador, Frank McKenna, asked me when our troubles over lumber began. I spoke to the librarian of Congress and, a couple of days later, he said their research showed that timber merchants in northern Massachusetts — what is now Maine — had successfully petitioned Congress during the second administration of George Washington to impose levies — tariffs — on New Brunswick timber sent to Boston to be used in shipbuilding.

More than two centuries on, we are still battling the US on softwood lumber. It is a reminder that American protectionism is as old as the Republic. And it will never change.

Canada is not usually the primary target of US trade actions. Like the CHIPS and ScienceAct, much of Joe Biden’s Inflation Reduction Act (IRA) is aimed at countering China in the ongoing war for technological dominance that includes AI, quantum computing and semi-conductors. But the deeply integrated nature of our trade means that Canada becomes collateral damage when the US subsidizes domestic industry – as with the Electric Vehicles (EV) tax credits –  or takes punitive trade action, as was the case with the Trump administration’s steel and aluminium tariffs.

Trade negotiations are complicated. They now involve considerations around climate, human rights, labour and the environment. National security has become a transcendent consideration in the wake of the pandemic and the return of great power competition. We must now secure and make resilient our supply chains through de-coupling, near-shoring and friend-shoring. Security of supply now trumps the economics of comparative advantage.

One result of the changing trade environment is the return of national industrial policies, complete with incentives and subsidies, including those in the IRA.

In this changed environment, Canada needs to look to its interests. Our advocacy efforts with the United States must be a permanent ongoing campaign reminding Americans that reciprocity in trade and investment continues to benefit both nations.

Notwithstanding our necessary efforts at trade diversification, the US is the market that matters most for big, medium and small business, and to those just starting to trade, including enterprises owned by women and minorities.

Manufactured goods like auto parts or resources like lumber, oil and gas go to the US. And with trade generating over 60 percent of our economy, access to the US matters.

For 36 American states, their biggest market is Canada. Our trade and investment generates nine million American jobs. We can parse this by state and by congressional and legislative district. Do this we must, because just as all politics in the US is local, so too is trade.

A “Team Canada” effort helped us secure a level playing field for the production of electric vehicles (EVs). Our wider success also depends on a collective effort involving the prime minister, premiers, ministers, and MPs from all parties. All levels of government must be involved as well as business, labour and interest groups. Through their daily advocacy, our ambassador, embassy staff and consulates play a critical role.

To level the playing field on the IRA and its successors requires Canada to pursue various avenues.

We will continue to protest their incentives on battery production as discriminatory and contrary to their trade obligations under the CUSMA and WTO, arguing, as we did in the case of the EV tax credit, that we should approach this on a continental basis

We will remind the US of our right to respond to discriminatory behaviour with trade sanctions. The threat of targeted sanctions helped gain us relief from steel and aluminum tariffs. But we need to keep in mind that imposing tariffs is also imposing a tax on our own consumers.

There is pressure to match the American subsidies with subsidies of our own. We have done this before, but let’s not forget that the ultimate cost is borne by the taxpayer. The better alternative is to seek an agreement with the US on the use of incentives, as we did recently on solar panels. The ideal would be a continental industrial strategy, including Mexico, leveraging our various assets, that in Canada’s case include our critical minerals.

Regardless, Canada needs to get its act together starting with the identification of the sectors that matter most to us. Then we need to come up with plans to make them as competitive as possible. Again, this will require a Team Canada approach.

There is a great deal of useful research that we can draw on from business, government and think tanks. Two stand out: ‘Restart, Recover, and Reimagine Prosperity for all Canadians’ prepared by Canada’s Industry Strategy Council (October 2020) and the Senate Prosperity Action Group report, Rising to the Challenge of New Global Realities (July 2021).

For Industry Council chair Monique Laroux, the changing geo-politics means Canada must develop an industrial plan linked to an investment strategy that capitalizes on our “core strengths, and aim for the top of the podium in promising areas such as digital and data; resources, clean energy, and clean technology; innovative high-value manufacturing and agri-food.” The Senate report endorses this approach arguing for a comprehensive review of our tax system, regulatory reform to ensure transparency and timely approvals, free trade within Canada, and to increase global exports, outside of the USA, to 35 percent.

To help implement and make practical their recommendations, we should reconstitute the sectoral advisory groups on international trade, or SAGITs, that served us so well during the original Canada-US Free Trade negotiations.

Composed of business, labour, provincial government and civil society, they guided the negotiators with practical advice on what Canada needed and acted as a sounding board as to what we could accept in negotiations.

Working together, Canadians have been remarkably successful in advancing our trade and investment interests, beginning with the Canada-US FTA in 1988, the NAFTA in 1994 and, despite Donald Trump, its recent re-negotiation into the CUSMA (2020). At the same time, we are diversifying our markets through free trade with the EU (2017), through our Comprehensive and Progressive Agreement for Trans-Pacific partnership (2018). And with the Indo-Pacific Strategy (2022) we are now looking to closer relations with India, Indonesia and ASEAN.

It has been 40 years since Canada upped its trade game beginning with the Review of Canadian Trade Policy that helped pave the road to the Canada-US FTA negotiations. What has not changed in advancing our trade interests, especially with the US, are the requirements to make it a Team Canada effort, to take the initiative with a clear focus on our objectives, and to remember that when dealing with the US, this is a permanent and never-ending campaign.

Contributing writer Colin Robertson, a Fellow and Senior Adviser at the Canadian Global Affairs Institute in Ottawa, is a former career diplomat who served Washington as well as New York and Los Angeles.