"What is the evidence, and what does it mean?" Bill James
This letter to the editor was published in Imprint (a student newspaper at the University of Waterloo) in January 1993. It was in response to an article in Imprint which made a number of claims regarding "free trade" which I found outrageous. Some of the paragraphs are terse because of a word limit on letters to the editor.
Dear Editor:
Marc Xuereb (Imprint, January 8th) writes that "Canada has already seen the effects of three years of a Free Trade Agreement (FTA)." Actually, it is practically impossible to distinguish the effects of a gradual fall in tariffs from the more significant effects of large swings in interest rates and the value of the dollar.
One can, however, see the effects of freer trade on Canada over the past 50 years, since over this time tariffs have been falling steadily. The average Canadian tariff on all imports was about 17% in 1935, 13% in 1940, 10% in 1955, 8% in 1965, 6% in 1975, and 4% in 1985. Clearly, over its ten year phase-in, FTA is not reducing tariffs significantly faster than they have been reduced before (Data source: Blomqvist et al, Economics, 2nd ed, p. 683).
What has happened during 50 years of freer trade? Canadians have specialized and traded more, developing one of the highest standards of living in the world, one of the highest rates of job creation in the world, and social programs of which Xuereb says Canada "prides itself."
Some people argue that the FTA must represent a break from the freer trade successes of the past since unemployment rose from 7.5% in 1989 to 11.8% in 1992. But unemployment also rose from 7.5% in 1980 to 12.8% in 1982. If the FTA had come into effect in 1980, I'm sure some people would have blamed it for the 1981-82 recession, even though both recessions were mostly just the result of high interest rates designed to slow down the economy in order to reduce accelerating inflation.
Xuereb writes that, under FTA and NAFTA, Canada can't have a "strong government to create more jobs for Canadians," which isn't true, since nothing in FTA and NAFTA prevents Canadian governments from encouraging entrepreneurship.
Xuereb writes that, under FTA and NAFTA, Canada can't "regulate the amount of foreign investment," which is false. Investment Canada still reviews all significant direct foreign acquisitions of Canadian companies (ones of $150 million or above). That leaves about two-thirds of Canadian-controlled assets reviewable; acquisitions of these assets could be prohibited (Source: Macroeconomics course notes).
Xuereb writes that freer trade "transfers the decision power from elected governments to corporate boardrooms." Actually, since the mid-1960's, large companies have had their employment fall as a group, with smaller businesses producing Canada's high rate of job creation.
Freer trade, by enabling more specializing and trading, should continue to make Canada wealthier, giving Canada's government more power to deal with social problems, such as workers not having the skills needed in our technologically advancing society. As Michael Wilson likes to point out, while some people said FTA would bring about the demise of Canada's medicare system, it is actually the U.S. that is looking at bringing its system up to Canada's standards!
Stephen Tomlinson
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Last Updated: 1997 July 20
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