Political Science 3170Political Science 3170The Politics of Canadian Trade The Politics of Canadian Trade

PolicyPolicy

September 9, 2010September 9, 2010

Introduction, Context for Introduction, Context for Canadian Trade PoliciesCanadian Trade Policies

Poli 3170 Poli 3170 The Politics of Canadian Trade The Politics of Canadian Trade

PolicyPolicy Welcome back!Welcome back! Geoffrey HaleGeoffrey Hale

Office – A-516 Office – A-516 E-518 (sometime this E-518 (sometime this month)month)

E-mail – E-mail – geoffrey.hale@uleth.ca (easiest (easiest contact)contact)

Office Hours – 11:00 – noon or 3-4 (Tu / Th)Office Hours – 11:00 – noon or 3-4 (Tu / Th)

Introductory ClassIntroductory Class

1) Why trade policy matters?1) Why trade policy matters?* economic* economic * historical * historical * * contemporarycontemporary

2) Context2) Context* a dynamic global economy* a dynamic global economy* Canada’s integration within North * Canada’s integration within North AmericaAmerica

3) Trade policy as “multi-level game”3) Trade policy as “multi-level game”4) Course outline / objectives4) Course outline / objectives

Why Trade Policy Matters IWhy Trade Policy Matters I

Canada is small, open economyCanada is small, open economy Trade, investment vital to econ. well-beingTrade, investment vital to econ. well-being

Exports – 35.3% of GDP (2008)Exports – 35.3% of GDP (2008)(1(1stst or 2 or 2ndnd among major industrial economies in among major industrial economies in most years since 1990)most years since 1990)

Two-way trade - 69% of GDP (2008)Two-way trade - 69% of GDP (2008) Most provinces export more to other countries Most provinces export more to other countries

than to other provincesthan to other provinces Not clear whether major drop in 2009 Not clear whether major drop in 2009

recession reflects mainly cyclical or structural recession reflects mainly cyclical or structural factors.factors.

Why Trade Policy Matters IIWhy Trade Policy Matters II

Comparative AdvantageComparative Advantage Canadian market too small to support full range Canadian market too small to support full range

of internationally competitive industriesof internationally competitive industries Specialization (between AND within industries) Specialization (between AND within industries)

contributes to greater efficiency, higher living contributes to greater efficiency, higher living standardsstandards

Secure access to large markets facilitates Secure access to large markets facilitates economies of scale, efficiency, competitiveness.economies of scale, efficiency, competitiveness.

Growing trend towards internationalization of Growing trend towards internationalization of production, distribution through continental, production, distribution through continental, global “supply chains”, “value chains”global “supply chains”, “value chains”

Why Trade Policy Matters IIIWhy Trade Policy Matters III

Legal factors shape trade and investment Legal factors shape trade and investment flowsflows Politics of trade generally requires “reciprocity” to Politics of trade generally requires “reciprocity” to

manage trade-offs between export expansion, greater manage trade-offs between export expansion, greater import competition for domestic producersimport competition for domestic producers

Rules-based trading system (regional or global) safer Rules-based trading system (regional or global) safer for small, trade-dependent countries than one based for small, trade-dependent countries than one based on power politicson power politics

Large countries (U.S., EU, Japan, China, Russia) have Large countries (U.S., EU, Japan, China, Russia) have greater freedom to engage in power politics at greater freedom to engage in power politics at expense of neighbours unless constrained by int’l rules expense of neighbours unless constrained by int’l rules to which they have consented.to which they have consented.

Technical details of rules heavily influenced by interest Technical details of rules heavily influenced by interest group politics, trade-offs (Colgin – “managed trade”)group politics, trade-offs (Colgin – “managed trade”)

Why Trade Policy Matters IVWhy Trade Policy Matters IV Long-term trend towards integration of trade, Long-term trend towards integration of trade,

investment processes, capital markets with those of investment processes, capital markets with those of major trading partners, esp. U.S.major trading partners, esp. U.S. Growth of economic interdependenceGrowth of economic interdependence

Trade and investment policies increasingly reinforce Trade and investment policies increasingly reinforce one anotherone another

Canadian direct investment abroad (CDIA) greater Canadian direct investment abroad (CDIA) greater than foreign direct investment (FDI) in Canada since than foreign direct investment (FDI) in Canada since 1997. 1997.

Canadian firms have major stake in openness, Canadian firms have major stake in openness, stability of international trade system.stability of international trade system.

Healthy employment, social service, retirement Healthy employment, social service, retirement income systems depend on profitability, growth of income systems depend on profitability, growth of private sectorprivate sector

Why trade matters - Why trade matters - HistoricalHistorical

Canadian economy historically dependent on Canadian economy historically dependent on foreign capital to finance economic foreign capital to finance economic development (net capital exporter since development (net capital exporter since 1997)1997)

Historic dependence on commodity exports to Historic dependence on commodity exports to finance costs of foreign capital makes Canada finance costs of foreign capital makes Canada “price taker” in global markets“price taker” in global markets

Major domestic debates (regional, ideological) Major domestic debates (regional, ideological) over competing strategies to enhance over competing strategies to enhance economic well-being, domestic political economic well-being, domestic political discretion / choicesdiscretion / choices

Why trade matters (21th c.)Why trade matters (21th c.)

Canada increasingly integrated into Canada increasingly integrated into dynamic int’l market networks for goods, dynamic int’l market networks for goods, services, capital, and technology – BUTservices, capital, and technology – BUT Canada not “unitary actor” in trade policy Canada not “unitary actor” in trade policy

competing regional, sectoral interestscompeting regional, sectoral interests-- “fragmegration” (Rosenau)-- “fragmegration” (Rosenau)

Challenges of economic adjustmentChallenges of economic adjustment-- “creative destruction” of capitalism -- “creative destruction” of capitalism (Schumpeter)(Schumpeter)-- shifting dynamics of international markets-- shifting dynamics of international markets

Isolation not an option!Isolation not an option!

Economic Dynamics and Economic Dynamics and TradeTrade

Shifts in macro-economic environmentShifts in macro-economic environmentMajor fluctuations in global commodity prices Major fluctuations in global commodity prices

creates major uncertainties in global marketscreates major uncertainties in global marketsMajor factor in economies, domestic political Major factor in economies, domestic political

environments of Western provincesenvironments of Western provincesExchange rate shifts affect “terms of trade” Exchange rate shifts affect “terms of trade”

(prices of goods, services net of exch. rates)(prices of goods, services net of exch. rates)Affects competitiveness of many industries, Affects competitiveness of many industries,

distribution of economic activity, power within distribution of economic activity, power within CanadaCanada

Impact on investment, corporate takeoversImpact on investment, corporate takeovers

Economic Dynamics and Economic Dynamics and Trade IITrade II

Canada, the United States and MexicoCanada, the United States and MexicoAsymmetrical trade relations / economic Asymmetrical trade relations / economic

dependencedependenceExtensive integration BUT Cdn. vulnerability to Extensive integration BUT Cdn. vulnerability to

unilateral trade actions as by-product of US unilateral trade actions as by-product of US domestic politicsdomestic politics

Dual bilateralismDual bilateralismLimited Canada-Mexico relationship; U.S. Limited Canada-Mexico relationship; U.S.

relations with Canada, Mexico subject to relations with Canada, Mexico subject to different historical, contemporary trends, different historical, contemporary trends, pressures.pressures.

Economic dynamics and Economic dynamics and trade IIItrade III

Rise of China and IndiaRise of China and India““outsourcing”outsourcing” investment accessinvestment access human rights & tradehuman rights & trade access to, price & supply of majoraccess to, price & supply of major

commodities, especially energy commodities, especially energy state trading companies / sovereign state trading companies / sovereign

wealth funds / national security wealth funds / national security

North American Integration INorth American Integration I

Globalization || North American Globalization || North American IntegrationIntegration

CanadaCanada U.S.U.S.

Exports : GDPExports : GDP 35.3%35.3% 12.6% 12.6%

(2008)(2008) (2008)(2008)

Exports to US/CanExports to US/Can 77.6%77.6% 20.5%20.5%

(Goods & Services)(Goods & Services)

N.A. Integration: Dual N.A. Integration: Dual BilateralismBilateralism

Limited Canada-Mexico relationship Limited Canada-Mexico relationship U.S. relations with Canada, Mexico subject to U.S. relations with Canada, Mexico subject to

different historical, contemporary trends, different historical, contemporary trends, pressures.pressures.

% of Canadian, % of Canadian, % of % of U.SU.S

Mexican ExportsMexican Exports 20082008Exports Exports

US-Canada TradeUS-Canada Trade 78%78% 20%20%

US-Mexico TradeUS-Mexico Trade 81%81% 12%12%

Economic Dynamics and Economic Dynamics and Trade IIITrade III

U.S. focus on expanding market access U.S. focus on expanding market access in global, regional markets, dealing with in global, regional markets, dealing with strategic economic threats (structural strategic economic threats (structural trade deficits, China, energy)trade deficits, China, energy)

Result – North American trade, other Result – North American trade, other cross-border issues often dealt with as cross-border issues often dealt with as subsets of U.S. domestic politics, subsets of U.S. domestic politics, increasing complications for Canadian increasing complications for Canadian governments, economic interestsgovernments, economic interests

Implications for Trade PoliciesImplications for Trade Policies

Trade policies segmentedTrade policies segmentedForeign and domesticForeign and domesticSectoral and/or regional (in Canada)Sectoral and/or regional (in Canada)

Contributes to two-level game of Contributes to two-level game of policy developmentpolicy developmentNeed to build complementary coalitions Need to build complementary coalitions

of domestic, international interests to of domestic, international interests to legitimate trade policies, secure against legitimate trade policies, secure against external challenges.external challenges.

Implications for Trade Policies Implications for Trade Policies IIII

Multi-level governanceMulti-level governancegrowing feature of international economic growing feature of international economic

relationsrelationsthe distribution of responsibility for policy the distribution of responsibility for policy

development and implementation across development and implementation across more than one level of government, and more than one level of government, and often across national bordersoften across national borders

often includes private sector and/or non-often includes private sector and/or non-governmental actorsgovernmental actors

Includes elements of “hard” and “soft” lawIncludes elements of “hard” and “soft” law

Framing the Course IFraming the Course I

i)i) Foundations for Canadian trade policies Foundations for Canadian trade policies economic / historical / political / internationaleconomic / historical / political / international

ii)ii) Contemporary int’l / regional environment for Contemporary int’l / regional environment for Cdn. trade policiesCdn. trade policies

(WTO, NAFTA etc.)(WTO, NAFTA etc.)

iii)iii) Evolving structures, processes of NAFTA, Evolving structures, processes of NAFTA, WTOWTO

iv)iv) Major sectoral issues (investment, Major sectoral issues (investment, procurement, climate change, intellectual procurement, climate change, intellectual property, agriculture)property, agriculture)

Framing the Course: Framing the Course: AssignmentsAssignments

Five “mini-assignments” (30%)Five “mini-assignments” (30%)Weekly topics available from class Weekly topics available from class

websitewebsiteResearch paper (30%)Research paper (30%)

Suggestions on topics encouraged Suggestions on topics encouraged English requirement English requirement Due Dec. 7/10Due Dec. 7/10

Take-home final (25%)Take-home final (25%)

ExpectationsExpectations

Be here! (Participation – 15%)Be here! (Participation – 15%)Engage!Engage!Readings done before class will Readings done before class will

enhance learning experienceenhance learning experience

Getting to Know YouGetting to Know You

1) Name / Program / Year1) Name / Program / Year

2) Where are you from?2) Where are you from?

3) Why are you taking this course?3) Why are you taking this course?

4) What would you like to get from this 4) What would you like to get from this course? course?

Framing the Course - SHIFTFraming the Course - SHIFT

DomesticDomestic InternationalInternational

PoliticalPolitical Domestic politicalDomestic political Int’l cooperation / Int’l cooperation / competitioncompetition competition (bilateral,competition (bilateral,(national, regional)(national, regional) multilateral)multilateral)

SectoralSectoralDomesticDomestic Market access,Market access,competitiveness competitiveness int’l competitivenessint’l competitiveness-- overlap with other sectors-- overlap with other sectors-- sector-based case study analyses-- sector-based case study analyses

MicroMicro Firm-specific;Firm-specific; Intra-firm trade;Intra-firm trade;Consumer impact Consumer impact dispute dispute

management.management.