Would you support a referendum on unilateral free trade?

[Machjo]

Should Canada remain a member of of its present free-trade agreements or should it adopt unilateral free trade?

1. Canada should remain a member of of its present free-trade agreements.
2. Canada should adopt unilateral free trade.

 

One advantage with this referendum question is that the two options aren't even necessarily mutually exclusive. If the majority should vote in favour of remaining in NAFTA, future NAFTA negotiators could still try to negotiate an open NAFTA agreement. By that, I mean an agreement that would not impose country-of-origin rules on Canada or in any way force Canada to raise tariffs against other countries in exchange for lower tariffs from the US and Mexico. However, if the majority vote for NAFTA, the government would understand that it could have unilateral free trade only to the degree that the NAFTA allows it.

If the majority vote in favour of unilateral free trade, this still would not prevent Canada from negotiating common standards in packaging and labelling, sanitary and phytosanitary, and technical standards to remove unintentional trade barriers. This could even allow Canada to remain in NAFTA on the condition that NAFTA be revised to form an open NAFTA that would allow Canada to pursue unilateral free trade.

 

In practical terms, since the US probably would insist on country-of-origin rules or other rules that would prevent Canada from pursuing unilateral free trade within NAFTA, most probably Canada would be forced to choose between the two according to the referendum result. I'm just saying though that under ideal conditions, the two options would not necessarily exclude one another.

Edited July 4, 2018 by Machjo

[-1=e^ipi]

None of the above.

 

Pursue free trade, but do so reciprocally.

[GostHacked]

FAIR Trade. Not free trade.  Not sure what is so hard to understand about this concept.   Let's give that a shot!

[Machjo]

12 minutes ago, GostHacked said:

FAIR Trade. Not free trade.  Not sure what is so hard to understand about this concept.   Let's give that a shot!

https://www.theglobeandmail.com/report-on-business/economy/study-recommends-canada-remove-all-trade-tariffs/article18598773/

 

I'll side with professional economists on this one.

[bush_cheney2004]

2 minutes ago, Machjo said:

https://www.theglobeandmail.com/report-on-business/economy/study-recommends-canada-remove-all-trade-tariffs/article18598773/

 

I'll side with professional economists on this one.

 

Interesting post...it is Canadian consumers who suffer most from tariff and non-tariff barriers, which also impacts the economy.   No wonder there is so much cross-border shopping...to the United States !

 

Quote

The study points out that while Canada is a generally open economy, it has higher tariffs than several other major industrialized countries, including the United States., Britain, Germany, Sweden, Finland and the Netherlands.

 

[Machjo]

4 minutes ago, bush_cheney2004 said:

 

Interesting post...it is Canadian consumers who suffer most from tariff and non-tariff barriers, which also impacts the economy.   No wonder there is so much cross-border shopping...to the United States !

 

 

Just as it is the US consumers who suffer most from Trump's trade tariffs. Even US economists are critical of trump's protectionism just as Canadian economists are critical of Canadian protectionism. Could it be because they are professional economists who are well-versed in the science of economics?

[bush_cheney2004]

12 minutes ago, Machjo said:

Just as it is the US consumers who suffer most from Trump's trade tariffs. Even US economists are critical of trump's protectionism just as Canadian economists are critical of Canadian protectionism. Could it be because they are professional economists who are well-versed in the science of economics?

 

While it is true that tariffs impact U.S. consumers, I think it is important to remember that the U.S. market starts at a much lower baseline for costs, taxes, state barriers compared to provincial barriers, competition, and variety of goods/ services.

As a U.S. consumer, I am not concerned as much as Canadians seem to be based on what I read in Canadian media.   The price of a bottle of ketchup should not drive national trade policies, or vice-versa.

Canadian consumers were getting hosed long before Trump came along.

Edited July 5, 2018 by bush_cheney2004

[Machjo]

44 minutes ago, bush_cheney2004 said:

 

While it is true that tariffs impact U.S. consumers, I think it is important to remember that U.S. market starts at a much lower baseline for costs, taxes, state barriers compared to provincial barriers, competition, and variety of goods/ services.

As a U.S. consumer, I am not concerned as much as Canadians seem to be based on what I read in Canadian media.   The price of a bottle of ketchup should not drive national trade policies, or vice-versa.

Canadian consumers were getting hosed long before Trump came along.

I agree. I favoured unilateral free trade long before Trump even ran for president because Canadian tariffs hurt Canadian consumers and Canadian subsidies hurt Canadian taxpayers.

The blessing in all of this was that even though the US was quite protectionist too, it was still quite pro-free-trade at least compared to other countries in the world which benefited US consumers which by extension benefited Canadian manufacturers. In short, a stable US economy benefits the Canadian economy through a spillover effect. Trump's policy hurts US consumers which by extension hurts Canadian manufacturers. This destabilization of the US economy hurts the Canadian economy too which simply makes unilateral free trade a more pressing need for Canada.

 

Edited July 5, 2018 by Machjo

[Machjo]

And by the way, at least as far as I know, the Globe and Mail strives to present objective journalism and so is not bound to partisanship.

[bush_cheney2004]

22 minutes ago, Machjo said:

 In short, a stable US economy benefits the Canadian economy through a spillover effect. Trump's policy hurts US consumers which by extension hurts Canadian manufacturers. this destabilization of the US economy hurts the Canadian economy too which simply makes unilateral free trade a more pressing need for Canada.

 

OK, but U.S. consumers will not be "hurt" as much as Canadian consumers have already been hurt by Canadian policies....before Trump's tariffs.  

Most Americans think little about the Canadian economy, as it is just not something for daily concern.   But Canadian media just gushes with content about the American economy and impact(s) on Canada.   Canada should have diversified trade to other nations long ago...U.S. exports are actually more diversified than Canada's while being far less dependent on exports.

Again, if this current rodeo with Trump does not get Canada's attention, then nothing ever will.

[cannuck]

While it might seem that Canada should have developed a stronger international trade outside of this continent, reality is that we share our economy with the largest economy in the world (OK, probably now second largest and slipping), but it is one with which we share a relatively open border, a very similar language and culture.   It simply costs very little to trade N-S compared with having to cross oceans.  Our biggest screw-up is in letting our value added manufacturing slide (except, of course, for what WAS a big deal - cars and car parts) and imitating the US shift to an economy that imagines it can survive on nothing but speculative activities of the banksters.

B-C is correct in mentioning that not too many people in the US give a second thought to Canada's economy or trade with us.  Some should, as we are literally an integral part of the US economy (particularly when it comes to resources).  If the drama-queen-in-charge had a half a brain and any dangly bits, he would have taxed the living crap out of energy exports to the US - THEN you would feel the sting of something extremely important to the US economy.

My personal response to all of this nonsense?   I will pack up 11 more of my family next week and drop the price of a nice new car to spend some time in Florida - including a healthy dose of Mickey Mouse.   So, take THAT you Yankee Doodle Dandies (will spend everything South of the Mason-Dixon line).   That will teach you to sanction my country.

So, while I can agree and fully understand the ultimate goal of Unilateral Free Trade, reality is we need to make do for now with what we actually have and stay in NAFTA.

Edited July 5, 2018 by cannuck

[-1=e^ipi]

3 hours ago, GostHacked said:

FAIR Trade. Not free trade.  Not sure what is so hard to understand about this concept.   Let's give that a shot!

Free trade is a subset of Fair trade. All free trade is fair trade.

 

Free trade is "we don't put trade barriers on you, and you don't put trade barriers on us". Pretty fair. Another form of fair trade is no trade. Out of the set of fair trade, free trade is the most desirable.

[-1=e^ipi]

3 hours ago, Machjo said:

Just as it is the US consumers who suffer most from Trump's trade tariffs. Even US economists are critical of trump's protectionism just as Canadian economists are critical of Canadian protectionism. Could it be because they are professional economists who are well-versed in the science of economics?

 

I am an economist and I say that it doesn't make sense to violate reciprocity.

[Machjo]

27 minutes ago, -1=e^ipi said:

 

I am an economist and I say that it doesn't make sense to violate reciprocity.

So what is your view of the theory of comparative advantage?

 

From my understanding, even if Canada unilaterally dropped all tariffs and the USA raised tariffs across the board by 10%, the market would eventually adjust since Americans would not want to buy CAD and so push the CAD down to compensate.

Edited July 5, 2018 by Machjo

[bush_cheney2004]

2 hours ago, cannuck said:

 ....If the drama-queen-in-charge had a half a brain and any dangly bits, he would have taxed the living crap out of energy exports to the US - THEN you would feel the sting of something extremely important to the US economy.
 

 

But this is something he (or any other PM) would not ever do, regardless of dangly bits.   Canada is so dependent on the U.S. economy, it would be economic and political suicide to do so.    The G&M ran a piece on just how important the job of U.S. "relations" is to a Canadian prime minister....it is absolutely critical not to piss off the elephant, because as of right now and for a long time before, Canada has no other economic options.

Some in Canada wish it was like the good old days when the U.S. pretty much just ignored Canada.

 

[-1=e^ipi]

7 hours ago, Machjo said:

So what is your view of the theory of comparative advantage?

 

From my understanding, even if Canada unilaterally dropped all tariffs and the USA raised tariffs across the board by 10%, the market would eventually adjust since Americans would not want to buy CAD and so push the CAD down to compensate.

You should take advantage of comparative advantage and pursue free trade, yes.

 

However, if a country adopts unilateral free trade, then in some cases it creates an incentive for other countries to tariff that country to generate tax revenues. I gave an example here:

.

It is better to engage reciprocity to incentivize true free trade.

[Machjo]

2 hours ago, -1=e^ipi said:

You should take advantage of comparative advantage and pursue free trade, yes.

 

However, if a country adopts unilateral free trade, then in some cases it creates an incentive for other countries to tariff that country to generate tax revenues. I gave an example here:

.

It is better to engage reciprocity to incentivize true free trade.

But is it not just taxing its own consumers?

 

Also, how would the theory apply in practice to jurisdictions like Hong Kong and Singapore with a higher per capita GDP than Canada's if unilateral free trade actually hurts them rather than benefits them? Are you saying that they could be even wealthier than they are now if they went back to reciprocal trade with retaliatory tariffs?

Also, what about the UK's historical unilateral free trade around 200 years ago? It was among the wealthiest countries on earth at the time.

Edited July 5, 2018 by Machjo

[Jariax]

Anyone who believes a referendum should be used to determine economic policy puts far too much faith in the general populous. 

[-1=e^ipi]

7 hours ago, Machjo said:

But is it not just taxing its own consumers?

 

Also, how would the theory apply in practice to jurisdictions like Hong Kong and Singapore with a higher per capita GDP than Canada's if unilateral free trade actually hurts them rather than benefits them? Are you saying that they could be even wealthier than they are now if they went back to reciprocal trade with retaliatory tariffs?

Also, what about the UK's historical unilateral free trade around 200 years ago? It was among the wealthiest countries on earth at the time.

 

It's taxing its own consumers, yes, but it is also taxing the producers of other countries. So part of that tariff tax revenue is generated by people in your country, but part is generated by foreigners. In comparison, more conventional taxes on tax people in your country. From a country's perspective, it can be preferable to obtain some tax revenue from foreigners rather than collect 100% of the tax revenue domestically.

 

I never said that unilateral free trade is bad in all cases, or that it is worse than all alternatives. Just that it is worse than two-way free trade, and by engaging in reciprocity you create incentives to move towards two-way free trade, where as if you adopt unilateral free trade, you create incentives to move away from two-way free trade.

[Machjo]

1 hour ago, -1=e^ipi said:

 

It's taxing its own consumers, yes, but it is also taxing the producers of other countries. So part of that tariff tax revenue is generated by people in your country, but part is generated by foreigners. In comparison, more conventional taxes on tax people in your country. From a country's perspective, it can be preferable to obtain some tax revenue from foreigners rather than collect 100% of the tax revenue domestically.

 

I never said that unilateral free trade is bad in all cases, or that it is worse than all alternatives. Just that it is worse than two-way free trade, and by engaging in reciprocity you create incentives to move towards two-way free trade, where as if you adopt unilateral free trade, you create incentives to move away from two-way free trade.

I think I understand now. You're looking at it from the political angle, by applying pressure on the other side. I would disagree with that. If a country has always had high tariffs against another, then while the other has something to gain to convince it to lower tariffs, it has nothing to lose by failing to convince it because they don't trade much with each other to begin with.

If a country has been engaging in unilateral free trade with another for many years already, the other gets to enjoy the benefits of this and may take them for granted but could fear that the unilateral free trader decides to raise tariffs which could then disrupt an economy that is used to it. As a result, the unilateral free trader probably poses a greater threat to the other should it raise tariffs on the other country that has become habituated to it than the tariffing country threatening to just not lower its tariffs to which the other country is used to already anyway.

[-1=e^ipi]

2 hours ago, Machjo said:

You're looking at it from the political angle

I'm looking at it from an incentive angle. Economics deals with incentives.

[Machjo]

I could even see a referendum on the government adopting a seventy-year plan for unilateral free trade. If the majority vote in favour, then this would pressure the government to adopt a policy to gradually lower tariffs and subsidies (maybe by X% every Y years for example) with the aim of eliminating them all within seventy years.

This would give businesses plenty of time to adapt.

[August1991]

On 7/5/2018 at 9:10 PM, -1=e^ipi said:

You should take advantage of comparative advantage and pursue free trade, yes.

 

However, if a country adopts unilateral free trade, then in some cases it creates an incentive for other countries to tariff that country to generate tax revenues. I gave an example here:

.

It is better to engage reciprocity to incentivize true free trade.

The foreign country could do as you suggest whether the small country opted for unilateral free trade or not.

=====

We live in a political world. When there's no Brian Mulroney around, I prefer Stephen Harper's response to this question.

Heck, the federal Liberal Party gave Mulroney the idea. 

Edited July 18, 2018 by August1991

[-1=e^ipi]

5 hours ago, August1991 said:

The foreign country could do as you suggest whether the small country opted for unilateral free trade or not.

Countries tend to respond to tariffs by retaliating with more tariffs.

 

Stating that countries could not respond if they choose to is pointless if it does not occur in reality.

Edited July 18, 2018 by -1=e^ipi

[Machjo]

1 hour ago, -1=e^ipi said:

Countries tend to respond to tariffs by retaliating with more tariffs.

 

Stating that countries could not respond if they choose to is pointless if it does not occur in reality.

So by the same logic, a country may reciprocate to unilateral free trade by either dropping or at least reducing its own tariffs against the unilaterally free-trading country, no?