The anti-trade budget

Conservative trade legacy consists of higher tariffs and more obstacles to foreign investment

Full credit to the government’s communications strategists: they managed to produce budget-day headlines that said the exact opposite of what was in the budget.

The first thing I read on the morning of budget day was the National Post story about cutting tariffs on hockey gear. There was also a matching A1 story in the Globe and Mail and I walked to the budget lockup in a cheerful mood. Even though the numbers involved were tiny, I couldn’t help but feel encouraged about how the measure was being marketed. Almost without exception, trade liberalisation is presented as a concession to the demands of foreign exporters, but the real gains from trade are those obtained from being able to purchase cheaper imports. These gains can be obtained by reducing tariffs unilaterally – the most famous example is the repeal of the the UK Corn Laws in 1849. There was no drawn-out process of negotiations with corn (wheat) exporters in other countries: the UK government simply eliminated tariffs so that the population could have cheaper food. The morning headlines led me to believe our government was going to implement a unilateral tariff reduction for the simplest and best reason: because it increased consumers’ purchasing power.

I was wrong, of course.  Yes, there were those 37 tariff reductions, but there was also the measure to ‘modernize’ Canada’s General Preferential Tariff (GPT) regime by ‘graduating’ 72 countries from the GPT; imports from these countries will now face higher tariffs. Mike Moffatt estimates those 37 tariff reductions will be accompanied by 1,290 tariff increases.  By my count, there are 84 GPT countries, but I still haven’t been able to track down a list of which countries will be removed from the GPT (Update: Mike Moffatt informs me 12 of these already have separate agreements with Canada, so that brings it to 72). The budget does name some examples: Korea, China (second-most important source of imports to Canada), Korea (seventh) and Brazil (twelfth), and the GPT countries as a group account for more than 20 per cent of imports. This measure is expected to generate some $300 million in extra revenues, on top of about $5 billion in existing excise duty revenues.

So instead of a unilateral reduction in tariffs, the government is planning a unilateral increase. This is not how a pro-trade government behaves. (Imports from the countries with which the Conservatives have negotiated free trade agreements are dwarfed by those from China alone.) Nor does a pro-trade government offer these justifications for raising tariffs:

“We should not be subsidizing by a preferential tariffs, countries that are no longer in that category of being underdeveloped countries. This includes the BRIC (Brazil, Russia, India, China) countries and they’ve been removed from the list,” [Finance Minister Jim Flaherty] said.

When the government released its budget last Thursday, it highlighted the removal of tariffs on baby clothes and sports equipment, but relatively little mention of changing the preferential tariff regime.

Flaherty said that’s because the decision was ultimately a foreign aid arrangement.

“That’s why the general preferential tariff was created and we’re talking about countries now that are no longer entitled to that kind of assistance from Canadian taxpayers,” he said.

“We’re trying to modernize our tariff arrangement. It’s a preferential tariff. It’s designed for countries that are growing their economies that are relatively weak. That’s not true of China or Brazil or India or Russia, and that’s why we’ve taken them off the list.”

I still can’t get my head around the truly bizarre notion that low tariffs are a subsidy to other countries on the part of Canadian taxpayers, especially since raising tariffs requires Canadian taxpayers to cough up an additional $300 million a year to the government. But if we needed any more evidence that this government is not serious about free trade, here it is. Instead of viewing cheaper imports as a way of increasing consumers’ purchasing power, the Conservative government views them as a problem to be solved.

After seven years in power, the Conservative trade legacy consists of higher tariffs and more obstacles to foreign investment. The Council of Canadians must be thrilled.

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