Justin Trudeau, Stephen Harper, Thomas Mulcair buy into free-trade theory that doesn’t work: Walkom

Other countries ditch free-trade orthodoxy to protect jobs. But not Canada.

JACQUES BOISSINOT / The Canadian Press file photo

The 19th century theory of competitive advantage that lies behind free trade is a venerable one, writes Thomas Walkom. And in some instances, it makes sense. Canada is probably better off trading lumber in exchange for bananas than producing both. 

Free trade is now orthodoxy in Canada. It used to be debated fiercely. It no longer is.

Stephen Harper’s Conservatives embrace free trade. So does Justin Trudeau, the new Liberal leader.

As part of their ongoing effort to pretend that they are not New Democrats, so do Tom Mulcair’s New Democrats.

Ironically, all of this has occurred at precisely the time when events demonstrate that free trade deals don’t work as advertised.

The latest evidence, reported Thursday, comes from a survey of the North American auto industry by DesRosiers Automotive Consultants. It found that while the auto sector itself is bouncing back from recession, Canada’s share of investment, production and jobs in that sector is declining.

The reason is straightforward. American states, particularly in the South, are paying the big car companies to locate there.

All of this occurs in spite of the North American Free Trade Agreement, which is supposed to level the proverbial playing field.

So far, the only solution presented by free traders is to have the Canadian and Ontario governments offer big manufacturers similar bribes.

The auto situation demonstrates one of the economic truths that Canadian politicians seem to forget: No sensible government will adhere to the spirit — or even the letter — of free trade if its own industries are getting whacked.

With the U.S. suffering from persistently high unemployment, it should come as no surprise that governments there are doing all in their power to attract jobs regardless of what free-trade purists say.

Nor is the U.S alone. Japan has served notice that it will have its central bank print more money, a move destined to drive down the value of the yen. The effect would be to make Japanese exports more competitive and thus discourage the country’s big manufacturers from building their products offshore.

Technically, such a move violates the international free-trade consensus against currency manipulation. Japan deals with that problem by insisting that it is simply engaging in sound banking practices.

The 19th century theory of competitive advantage that lies behind free trade is a venerable one. And in some instances, it makes sense. Canada is probably better off trading lumber in exchange for bananas than producing both.

However, theory is only theory. In the textbook version of free trade, time does not exist and all parties always win immediately. But in the real world of free trade, entire generations can be savaged as jobs and capital slosh around the world.

In countries ranging from Greece at one extreme to Canada at the other, this is what’s happening now.

Previously, Canada had a more nuanced approach to trade. We were happy to sell resources freely as long as some refining was done here. We protected some fruit and vegetables from foreign competition (which, among other things, encouraged food processing). We protected most manufacturing, which gave rise to factories throughout southern Ontario.

In the auto sector, trade was managed between the U.S. and Canada in a way that ensured production in both countries. Japanese firms like Toyota and Honda were enticed to set up plants in Canada in part by making it harder for them to ship finished autos here.

And it worked. We made things here. And political parties supported the idea of doing so.

Now the Liberals and even the New Democrats complain that trade is not free enough. Both parties chastise the federal government for raising tariffs slightly on Chinese-made goods.

In the Commons this week, Trudeau said such tariff hikes make it harder for parents to buy their children little red wagons. The Conservatives responded by saying they have lowered the tariffs on some foreign-made hockey gear

In most countries, most politicians would ask why little red wagons are no longer manufactured at home. In the past, Canadians might have asked why the birthplace of hockey has to import skates and pads from abroad.

Thomas Walkom’s column appears Wednesday, Thursday and Saturday.