Breakling Down Canada's Position In The Trade War

Every now and then, Real Clear Politics runs a piece that's worth reading, in this case, Canada Dreaming by Nicholas Phillips. He brings up points about "associate membership" in the EU that nobody else has mentioned:

Last year, Canada exported about $400 billion worth of goods to the United States, responsible for nearly 16% of total Canadian GDP and for 41% of all Canadian manufacturing jobs, including over 75% of auto jobs. Conversely, Canada sends about $40 billion of goods to the EU. For Carney’s strategy to work, there needs to be demand in the EU to replace any reduction in goods that Canada sells to the US. But the project of redirecting Canada’s exports away from the United States and toward the EU looks like a project to make water run uphill.

The most popular policy for creating demand, a free trade agreement, was already implemented in 2016. CETA, the Canada-EU free trade agreement, hasn’t been ratified by all EU member states but its key terms are already in force on a provisional basis. That means that the vast majority of goods trade between Canada and the EU already takes place on a zero-tariff basis. No new demand to unlock there.

. . . Canada has very tight regulatory alignment with the United States, the product of decades of trade negotiations and supply-chain integration. The EU, meanwhile, remains an exceptionally jealous guardian of its regulatory standards. The bloc requires non-members, such as Norway and Switzerland, to adopt EU regulations and pay into the EU budget as a condition of accessing its large single market. The EU has no incentive to allow Canada to enjoy the benefits of the EU market without these obligations, because member states would likely demand similar treatment and fracture the bloc. After Carney’s speech at the EU Parliament, EU Trade Commissioner Maroš Šefčovič cautioned that “there would be no special treatment for Ottawa.”

Even if it could be achieved, the project of Canada-EU regulatory alignment would be a curious way to safeguard Canada’s sovereignty. The essence of the European project is the delegation of national authority to a transnational bureaucracy in Brussels for the sake of economic integration. Further, the project is zero-sum. Canada is already embedded in a North American regulatory system under USMCA, which contains extensive disciplines on technical standards, sanitary and phytosanitary measures, testing, certification, and regulatory cooperation. Achieving regulatory alignment with Europe means ditching these USMCA commitments, creating costly new barriers to trade with the United States.

In other words, as of now, the EU represents only 10% of Canadian exports to the US. Somehow, Canada would need to ramp up its trade with the EU suddenly by an additional $396 billion to compensate for the loss of US trade. But Canada would almost certainly have to pay the EU for access to its market as a non-member, as Norway and Switzerland currently do. As of 2016, Norway paid the EU roughly 890 million euros. In addition, full EU members pay roughly 1% of annual GDP to the EU. We don't know what Canada would pay as an "associate member", but Canada's GDP is roughly $2.8 trillion, so as a full member, it would pay $28 billion.

We must assume that "associate membership" in the EU would come at a cost in the billions, which woulld add to the shortfall Canada would have to make up in lost US trade. But add to this the fact that EU membership involves at least a partial loss of sovereignty. Mark Carney would have to cone up with an awfully good deal. How can he sell it?

Here Phillips comes up with another insight: Carney is manufacturing an existential crisis:

Carney’s move is being cast in world-historical terms as his approval ratings break 60%. Clearly, there is a sense of national consciousness awakening as a country that had long settled into a comfortable routine discovers a grand purpose.

Carney himself appears to agree, reaching for analogies to the most decisive conflicts in Western history to describe the stakes of the present moment. In a speech last week before the European Parliament, Carney invoked Buchenwald, the World Wars, and the most portentous dates of the post-war order: “Freedom and life must be earned every single day. Every day. Not once in 1945, or 1956, or 1989. Every day, including this one.”

. . . Conditioning Canada’s preferential market access on limiting trade with China, or denying an auto tariff reduction to pickup trucks, does not merit analogies to the World Wars. Even with the Trump administration’s sectoral tariffs, the average U.S. tariff on Canadian imports is 5%—not quite the invasion of France. Yet Canadian media has decided to emphasize Trump’s rhetoric over his actual policies, comparing Carney to Winston Churchill and earnestly asking whether Trump plans to invade Canada (the bewildered American admiral’s response: “Would you ask me, please, also, what my attack plans are for the Martians?”). Carney’s popularity has surged as he single-handedly turns this perplexing trade dispute into a crisis and manufactures a grand trial for Canadian nationhood.

It seems that the real driver of these events is the psychic need for such a trial. Canada hasn’t had one in a long time, and prosperous liberal societies aren’t very good at generating them even as we crave thymos, the Greek term for the spiritedness that comes from struggle and purpose.

This brings me to the standup routine embedded above from Ben Bankas, a Canadian-born current US resident who recently returned to sellout crowds in Toronto.

So noce to be back on the shores of Lake America. [enthusiastic applause] The nice part about Toronto, it's on the lake. Yeah, that's the American part. . . . I'd be happy if America took over at this point. I mean, it'd be a celebration. The only people who'd be pissed off if the Americans took over would be the liberal white people. Cause the conservatives would be oh, [bleep] yeah, I'm moving to Tampa.

There are Canadians with a sense of humor, by no means a majority, I'll admit, but some of them are laughing pretty hard lately.