The Toronto Star (Canada)
By Thomas Walkom
April 18, 2009

For 20 years, Canada has focused on free trade with the United States. It is our special relationship, the fulcrum of our economy, our one and only big idea.

But there are indications that this particular big idea is fast becoming passé.

In part, the sheer fact of the global slump is to blame. As the perennial softwood lumber dispute shows, the U.S. has never entirely embraced its obligations under the North American Free Trade Agreement. Any recession merely heightens America’s protectionist instincts.

But this is not just any recession. It is shifting the balance in the world economy. The America that emerges from this slump promises to be a significantly different country.

Pre-recession America was the world’s glutton – a country whose consumers were willing to buy anything and everything even if they had to go into debt.

For Canada, with unique access to this massive and undiscriminating market, prosperity was assured. Did Americans want gas-guzzling pickups? Canadians would build them – and then provide the petroleum to make them run.

Did Americans want lumber to build houses that ultimately they couldn’t afford? No problem. We’d sell them that as well.

But thanks to the Great Recession, it seems that those heady days may be gone. Government figures show that Americans are starting to save again, instead of spending beyond their means.

More important, the U.S. government has warned its citizens that the party is over and that one way or another the country will have to start paying its way.

"We have to realize that we cannot go back to the bubble-and-bust economy that led us to this point," U.S. President Barack Obama said this week. "We must lay a new foundation for growth and prosperity – a foundation that will move us from an era of borrow and spend to one where we can save and invest, where we consume less at home and send more exports abroad."

Meaningless rhetoric? Perhaps. But the recession has already started to alter the world balance. Until the slump hit, it was Asia (particularly China) that saved and North America (particularly the U.S.) that spent.

But as part of the global effort to fight the recession, the Chinese are spending more. Conversely, Americans are buying less.

Right now, the U.S. dollar remains strong as foreigners flee to its perceived safety. But expect this to change over time, particularly as the massive outlays for Obama’s various stimulus and bank bailout schemes – plus his costly Iraq and Afghan wars – start to translate into inflation that weakens the U.S. dollar.

China has already hinted that it is worried about the greenback’s long-term stability. If that sentiment spreads, Americans will lose much of the benefit – and extra purchasing power – that accrues to those who happen to issue the dominant world currency.

For Canadians, all of this is more than ironic. In the late ’80s, desperation pushed us to latch on to free trade with the U.S. At that time, the world appeared to be breaking up into regional trading blocs – one based in Europe, another in Japan, a third centred in Washington. To stay aloof was to risk isolation.

As a royal commission on the economy noted in 1985, Canada was the only major industrial country without access to a market of more than 100 million consumers.

For that royal commission, the solution was to reverse 100 years of history and make Canada an integral part of the massive U.S. economy. Which is what we did.

Since then, Ottawa has focused on deepening that cross-border relationship as well as ensuring Canada’s involvement in any other free trade deal that the U.S. enters into (such as with Peru) or envisages (such as with Colombia).

Canada’s military, security and foreign policies have been predicated – even more than before – on the need to protect this special trade relationship with the U.S.

Put bluntly, we are not in Afghanistan to forestall terrorist attacks on Toronto or help Afghan women. We are in Afghanistan to maintain unrestricted access to export markets in the U.S.

But now the world is moving on. Prime Minister Stephen Harper – a firm believer in free trade orthodoxy – is at the Summit of the Americas conference in Trinidad this weekend to push trade liberalization. It seems he will be in a minority.

"We have to forget about trade liberalization," Chile’s ambassador to the United Nations said last month, a sentiment echoed by Obama’s special adviser on the summit, Jeffrey Davidow.

Meanwhile, Obama is talking about a very non-free-trade topic: reinvigorating and improving his country’s manufacturing sector.

"For so long, we have placed at the top of our pinnacle folks who can manipulate numbers and engage in complex financial calculations," he told a Georgetown University audience this week. "But you know what we can really use is some more scientists and some more engineers, who are building and making things we can export to other countries."

Other countries. If Obama is serious about reinvigorating America’s industrial economy – and I’m beginning to think he is – he won’t be taking aim at just China.

Whether we like it or not, for Americans, Canada, too, is another country.

Thomas Walkom’s column appears Wednesday and Saturday.