Canada used to excel at industrial strategy, but now we are satisfied with trade, and any type of trade will do. Some will say that old economic project is dead (or should be). They suggest it's futile to want to graduate up the export food chain -- from iron ore to steel, from steel to airplanes -- because "the market" demands we specialize in what we're best at. If it's oil, gold and raw materials instead of auto parts, so be it.
That hands-off mentality, which is at the heart of global trade deals like the recently concluded Trans-Pacific Partnership (TPP), goes some way to explaining why Canada's trade deficits are growing, faster with free-trade partners than other countries, and the job intensity of our exports is declining. It's a main reason we should not accept government claims the TPP will be good for jobs.
The trend in the employment intensity of Canadian trade was already not good. From 2000 to 2014, Canadian manufactured goods exports declined from 64 per cent to 46 per cent of total exports. Unprocessed or semi-processed commodities increased from 30 per cent to more than 50 per cent of total exports during this time, with crude oil becoming Canada's largest export to the TPP countries. This is important because not all industries create jobs equally.
An estimated 580 direct jobs can be attached to each $1 billion in exports from the extractives sector whereas the same amount of trade in manufactured goods produces 2,300 jobs -- four times the jobs creating power of extractive industries. Statistics Canada data indicates that extractives comprise 21 per cent of value-added exports but only four per cent of employment. Compare that to manufacturing, which provides 52 per cent of value-added exports and 40 per cent of employment.
There is little hope the TPP will reverse this trend and its proponents know this. Globally tariffs are at all-time lows. As a result of multilateral trade agreements (WTO) and existing Canadian FTAs, 97% of Canadian exports enter TPP countries tariff free. Because the remaining tariffs are already so low, most economists project a negligible economic upside for Canada of 0 per cent to 0.22 per cent GDP growth by 2025. This could explain why the government never released a detailed economic impact assessment before agreeing to the deal in Atlanta this week.
Though export and import growth will be modest if the TPP is ratified, the latter are estimated to grow more quickly, which will produce even larger trade deficits. Current trade data indicates Canada may find some export gains in oil seeds, coal, copper, pork and lumber, while our imports of autos and auto parts, printing machinery and earth-moving heavy equipment grow. No wonder Canada's autoworkers are concerned. The Ford Motor Company is urging U.S. Congress to oppose the TPP.
Extractive industries have always been, and will continue to be, part of the Canadian economy, but historically governments have sought to balance raw material exports with induced growth in the manufacturing sector. This has included initiatives to generate spinoffs for the Canadian economy from mining, such as by increasing the level of processing before exporting commodities.
But these measures are largely prohibited in modern free trade deals from NAFTA onwards. The TPP will further remove governments' ability to take initiatives that might foster a more diverse and job-intensive economy. We're going back to the future, at least in terms of goods exports, as proverbial hewers of wood and drawers of water.
Canadian business groups counter this by pointing to Canada's successful service exports (finance, business services, etc), but they have trouble pointing to where the TPP will improve these firms' existing mostly open access to Asian markets, or how this will produce jobs at home.
Canada is exporting goods that create few domestic jobs and importing goods that create jobs elsewhere. This accounts for some of the decline in manufacturing employment over the past decade in Canada and points to long-term challenges in creating jobs and increasing wages. The exchange rate volatility associated with being a "mining and energy superpower" has also contributed to the decline in manufacturing jobs. For workers, Canada's free trade experience is one of stagnating wages, increasing income inequality, and relatively higher levels of unemployment.
The TPP, like all modern "free trade" agreements, contains no concrete measures to directly protect or create employment. On the contrary, it ties governments' hands in pursuing employment and industrial strategies. Jobs are simply assumed to follow automatically from tariff reduction and providing increased protection for investors. They, and not the government, should have complete freedom to decide when, where and how goods and services are produced. Recent history tells us that companies have a poor track record when it comes to translating this freedom into jobs or growth.
Ultimately, though the TPP is not about trade or increasing prosperity for most Canadians, one can understand why Canada's corporate elite are cheer-leading the deal. It entrenches their role as drivers of the Canadian economy and "consitutionalizes" their rights to profitably exploit Canada's resources. For the rest of Canadians, accepting the TPP will have long-term detrimental impacts on the prospects for full employment, economic prosperity, and the ability of Canadians to sustainably manage their economy.
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