Trump's Trade Fight With Canada Highlights Two Approaches To Capitalism

Canada, by design, has avoided the runaway inequality seen in the U.S.
President Donald Trump speaks with Canadian Prime Minister Justin Trudeau at the G-7 summit in Quebec on June 8.
President Donald Trump speaks with Canadian Prime Minister Justin Trudeau at the G-7 summit in Quebec on June 8.
Leon Neal via Getty Images

President Donald Trump’s savaging of Canadian Prime Minister Justin Trudeau has gotten a good deal of attention for its sheer weirdness — why scapegoat one of America’s most loyal allies and benign trading partners? But it’s worth looking below the surface at the actual trade relationship and the differences between the two countries.

For now, Trump may have done Trudeau a favor. After the U.S. president’s trade tantrum and imposition of tariffs on steel and aluminum, polls showed that 72 percent of Canadians supported Trudeau’s handling of the dust-up. But polls also showed Trudeau’s Liberal party slightly behind the rival Conservatives, with both losing ground to the more left-wing New Democrats.

Trade friction between the two nations is nothing new, and the North American Free Trade Agreement did not put an end to them. One long-standing complaint involves the dairy industry.

Both countries have systems for protecting their dairy farmers against imports, but the American dairy industry has long argued that the Canadian system is more closed. In principle, consumers would benefit from lower prices with freer trade. On the other hand, farming is notoriously vulnerable to drastic price fluctuations, and a somewhat protected system allows for more stable rural life. Economic theory does not provide a simple right answer.

Another bone of contention is Canadian exports of lumber. This is a classic case where the theory of free trade applies. Canada is blessed with abundant forests. It makes sense that Canada should be the low-cost producer and exporter.

American timber interests, however, have argued going back to the Reagan administration that Canada’s system for managing its national forests gives Canadian lumber exporters too good a deal and that the price is therefore too cheap. Sorry, but Canada has the better of that argument.

“Canada has simply chosen to have a more equitable brand of capitalism. This of course has political consequences.”

Canada also naturally benefits from cheap hydropower, which helps it produce competitively priced aluminum, the production of which is very energy-intensive. Is this an artificial subsidy requiring a U.S. tariff? Probably not.

Dig a little deeper and you appreciate that Canada and the U.S. have rather different economic and social systems and different approaches to capitalism. Both nations have forms of managed capitalism; neither practices laissez faire. But Canada’s, by design, serves ordinary people more equitably. America’s system is increasingly managed in the self-interest of the very rich.

Here are a few key differences. Canada has much stronger unions. In the 1950s, both Canada and the U.S. had union membership rates of about 35 percent. After six decades of union-bashing by employers, the American private sector unionization rate has been cut to around 6 percent, while Canada enforces worker rights and its union level is basically unchanged. That, in turn, influences living standards.

Canada also recovered more quickly from the global financial collapse of 2008 because the Canadians insisted on a well–regulated banking system while the other G-7 nations were going on a deregulation binge. And Canada of course has a universal health insurance system, as well as a lot more, well-run affordable social housing.

Canada has its problems, to be sure, but one of them is not U.S.-style inequality. A classic book on the subject, Dan Zuberi’s Differences That Matter (2006), compared the working poor in service-sector jobs in Vancouver and Seattle. These are two very similar cities, but for the fact that one is in the U.S. and the other is in Canada.

Zuberi found that in such occupations as hotel and motel work, Canadians lived far more decently. With unions, their earnings were higher. Their pensions were better, housing more affordable, health coverage taken for granted.

U.S. gross domestic product performance is a bit better than Canada’s on average, but the gains go mostly to the top. Canada has simply chosen to have a more equitable brand of capitalism. This of course has political consequences.

Despite the presence of lots of immigrants, Canada has had far less of a populist explosion than other Western countries, because regular Canadians are getting a fair shake. (A recent exception is Ontario, where the party of Doug Ford, a Trumpian conservative, won the June election with just 40.6 percent of the vote because the two more left-wing parties, the Liberals and the socialist New Democrats, could not agree on a common strategy. There’s also a lesson in that.)

But on the whole, the Canadian center is holding, and it’s a progressive center.

Defending a decent form of capitalism against the pressures of one-size-fits-all globalism is not easy under the best of circumstances. It’s even harder when you are heavily reliant on trade with a much larger economy immediately to your south — and harder still when the government of that nation is temporarily in the hands of a lunatic.

Robert Kuttner is co-editor of The American Prospect and a professor at Brandeis University’s Heller School. His new book is Can Democracy Survive Global Capitalism? Follow him on Twitter at @rkuttnerwrites.

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