Canada needs to unite its domestic and foreign policy focus and orient it toward amassing economic and political power.DARRYL DYCK/The Canadian Press
Jeff Mahon is director of geopolitical and international business advisory at consulting firm StrategyCorp.
Welcome to the age of perplexity. Canada’s decision to unilaterally drop retaliatory tariffs against the United States has left Canadians confused as to what the strategy is for dealing with U.S. President Donald Trump’s administration and our place in the broader world.
The reality is Canada had few other options in dealing with a much more powerful country that throws its weight around to get what it wants. Our initial response to Mr. Trump’s tariffs followed an outdated playbook. As his resolve hardened and extended beyond Canada, it became clear that his trade attacks on our country were only the beginning of a much larger project.
To advance its domestic and international agenda, the U.S. is pursuing a policy that maximizes power by exploiting its centrality in global economic and security affairs.
Canada is in an unenviable position where trade dependence makes us susceptible to economic coercion. Removing our countertariffs is only the latest attempt to secure much needed market access through concessions. As part of economic and security negotiations with the U.S., Ottawa is systematically and quietly aligning its policy with Mr. Trump’s agenda, including on matters of border security, digital governance and steel.
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However, the extent and limits of this policy alignment have yet to be determined. Canada’s de facto sovereignty is at risk – its ability to freely exercise foreign, security and economic policy.
The only antidote is to rapidly build Canada’s own power through domestic economic development and a network of complementary relations with other countries. To get clarity on the opportunities and constraints, we must recognize that we’ve entered a new geopolitical era, that of the economic security regime.
A new set of principles and norms are quickly superseding the neo-liberal, rules-based international order. Bilateral agreements are trumping multilateralism, as evidenced by governments around the world signing onto lopsided agreements with the U.S. These deals also undermine the old rationale where issues of economics, security and foreign policy are self-contained in separate technocratic tracks. Mr. Trump’s deals eschew this maxim, as he uses U.S. power to force multidimensional concessions.
The new economic security regime is not merely a product of Mr. Trump’s rise. Rather, political actors surf the contingencies created by the tidal waves of history. The President capitalized on the discontent wrought by globalization, identified the tension between inert policies and the changing world they’re meant to govern, and is now changing the course of not only the U.S., but the world at large.
Geopolitical orders are essentially constructions shored up by the system’s most powerful countries. Rival powers, such as China, can and do emerge by exploiting loopholes and attention or enforcement vacuums. Throughout history, there has been an interplay between hegemonic powers that employ what are essentially variants of liberal policies, and rivals that seek advantage through mercantilism. At some point, the leading power reckons that a liberal economic policy no longer suits its interests and then reneges.
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The U.S. under Mr. Trump has determined that the costs of both its open economic policy and international security blanket are no longer worth the benefits. It is shirking status quo commitments and redefining its terms of international engagement. The rest of the world is at the same time realizing the intrinsic risks of a system whose dense interconnectivity relies on Washington to keep its promises, rather than the illusion of the universality of neo-liberal principles.
The world is now in a transitory period with no clear leader. There is a global struggle over the economic vectors of power: productive investment, technological innovation, jobs and market access. Many of Mr. Trump’s policy actions, both domestic and international, seek to maximize U.S. power using these elements. This is where the Canadian government’s policy priorities should also lie.
Canada needs to unite its domestic and foreign policy focus and orient it toward amassing economic and political power. Some early indications from Prime Minister Mark Carney’s government suggests he understands this.
His “Building Canada Strong” agenda seeks to channel the nationalist momentum catalyzed by Mr. Trump and correct for past neglect with respect to Canada’s economic power – particularly in those sectors positioned to lead diversification efforts. Trade-enabling infrastructure, energy and natural resources are poised to benefit from the government’s push to advance projects of national interest as outlined by Bill C-5.
It’s important to create a single window system and to fast-track approvals, but it won’t be enough to drive investment and job growth. Canada must rapidly improve the investment climate to incentivize the development of large and small projects. Mr. Carney has called on his administration to have a disciplined focus and be open to new approaches to governing. Ministers and departmental officials should respond by working with business and labour to forge a new industrial policy compact.
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Internationally, the government must gear trade policy toward managing market access to maximize investment and jobs. This means shedding the dichotomy of free trade versus protectionism. Along this spectrum, a new dimension is unfolding where there is a mix of open, closed and restricted-access sectors.
Take steel for example: In an attempt to secure U.S. access, the government is effectively committing to a common Canada-U.S. steel market. Such a doctrine could also apply to China, as reconciling that trade dispute will require granting more certainty to Chinese enterprises, regardless of whether it’s welcome or under what conditions. This must be based on an honest assessment of where engagement with China either aids or undermines Canadian economic interests.
Despite having a network of free-trade agreements spanning the globe, Canada’s trade with key markets doesn’t live up to its potential because many Canadian companies manufacture products geared toward the North American market. For example, exporting to the European Union may require companies to retool their operations to meet EU regulations and product standards. The government could consider a tax rebate for capital expenditures on products that meet EU standards, at once spurring business investment and trade diversification.
We also need to leverage existing strengths to find creative ways to amass power and influence abroad. While the government has come around to the idea of making Canada an energy superpower, we should recognize that we’re already an agricultural superpower and integrate this into foreign policy. Agriculture can help build inroads into the Indo-Pacific – an aggressive push to secure sector-specific market agreements under the guise of food security would benefit both Canada and the region.
The new economic security regime has emerged from an old order that Canada helped build and used to benefit from. While the new world order isn’t conducive to the world we want to live in – it is the one that Canada must come to terms with.
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