Comment
Trading opinions
Isn’t it enough that removing hurdles to trade flows around the globe has helped lift more than a billion people out of poverty? Does it matter where they live? Isn’t the fact alone a breathtaking accomplishment? Our species has fought wars and ripped apart societies to achieve far less.
My friend Dave Gray writes this week to say that, in Canada at least, loosening trade rules serve only the rich and powerful. Taking issue with my comment last week “What is the EU?” Gray counters that income inequality has increased in this country and that globalization and slackening trade regulations are the cause. He lists other ills (government debt, electricity rates, etc.) some of which I think are a stretch to pin on free trade. In any event, I will confine my comments to the popular notion that the free flow of goods and services around the world has enriched only a few while delivering little benefit to Canadians.
Let’s look at the numbers. Since 1993, the year the North America Free Trade Agreement took effect (the first of a wave of global trade deals), international trade flows have tripled—three times the volume of goods and services bought and sold between the partners Mexico, the U.S. and Canada. Cross-border investment and travel have surged. In Canada, this investment has created 4.7 million new jobs since 1993, according to the Council on Foreign Relations, a New York-based think tank.
Well, that is all good, but some argue those new jobs are being created in the service sector and displacing high-paying manufacturing jobs. Indeed, vast swathes of industrial sectors have abandoned North America for cheaper labour in Asia over the past 25 years. But it is not true to say that Canadian wages have lost ground. According to Statistics Canada, real average hourly wages (adjusted for inflation) have risen steadily since 1990. Interestingly, women’s wages have risen more rapidly than men’ and significantly narrowing the gap in this period, though both are up.
Ah yes, but aren’t lower income Canadians being left behind by globalization? It turns out the answer is a clear no. Since 1995, the share of Canada’s population living below the low-income cut-off—Statistics Canada’s label for poverty line—has fallen sharply from a peak of over 15 per cent to below 9 per cent currently.
What about the middle class—surely they whithered under the effects of free trade and lost manufacturing? No again. After declining throughout the 1980s, median household income in Canada has risen steadily since the early ’90s. Again, this inflation adjusted data is from Statistics Canada.
What about the 1 per cent? Isn’t it true that a disproportionate amount of income flows to a few Canadians? And hasn’t this been amplified by free trade? The data shows that income inequality, measured after government transfers and redistribution, widened in the ’80s and ’90s but has flatlined since then. That doesn’t mean it should be ignored—only that it isn’t worsening. This points to fairly effective income redistribution policies in Canada—where 70 per cent of the population receives some form of government transfer.
So let’s recap. More jobs. Higher wages. Lower poverty levels. And, we put a lid on income inequality more than a decade ago. By the data that can be measured, free trade flows have been a net positive for Canada. Yet, many feel left behind.
Certainly, some have been. The middle-aged man who figured he would work his entire career at the locomotive plant in London, the pulp mill in Cornwall or the truck assembly plant in Oakville has endured the loss of a way of life. His skills aren’t needed anymore. Unsuited for another type of work, unwilling to move and disinclined to be trained for other employment, these men—and they are mostly men—have been marginalized by the restructuring that followed the freer flow of goods and services. Their plight ought not to be minimized. But nor should it be the reason we unravel all the good that has been achieved.
In the U.S., where government redistribution has been less effective in sheltering industrial workers— and indeed whole towns—from the harshest effects of free trade, both leading candidates are calling for trade deals to be renegotiated or torn up.
That won’t happen. Not because this is empty campaign rhetoric—it is—but because both history and data show that the free flow of goods and services benefits much more than it displaces, while trade protectionism promotes inefficiency, discourages innovation and stagnates economies.
We don’t have to look outside our country to see the benefits of free trade—but it is in our self-interest, I think, to acknowledge what has been accomplished both here and around the globe. It wasn’t a strongman dictatorship or totalitarian regime that made this happen— it was an idea, founded on evidence and experience. Once planted it found roots and blossomed.
We can mourn for those left behind, but not for our children. We have prepared them to look beyond our borders for opportunity. We have taught them not to fear the outside world. And we leave them an economy that is stronger because of our willingness to do business anywhere—not confined by fear and ignorance. That is surely a good thing.
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