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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.


 

The anti-trade budget

  1. Over Xmas I heard lots of complaints about people ordering things from the US, and then having to pay ‘duty’ at the door. It usually doubled the cost of the item.

    ‘What happened to NAFTA???’ was a huge complaint, but I don’t know if they got any answers.

    • NAFTA only applies if the product was manufactured in the US or Mexico. If you go to the US and buy a bunch of stuff that was imported from elsewhere, then NAFTA doesn’t apply.

      • I’m aware of NAFTA rules.

  2. On the bright side.. at least it’s more of a sales tax than an income one.

    • oh that’s very narrow-sighted..

      • I said “on the bright side” not “it’s a good thing”

  3. “his measure is expected to generate some $300 million in extra revenues…”

    Hey, opposition parties: if you can’t get some headlines with this, you should abandon all hope and go home. How about “The largest tax increase in Canadian history!” or “A $300M job-killing tax on Canadian families!” or “A protectionist, anti-trade economic debacle!”

    …repeat ad nauseum

    • They’re more likely to complain that we should be “spending” more money to support Canadian industry. They’re economic illiterates.

  4. John Stuart Mill – I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it.

    ———

    4 Boneheaded Biases Of Stupid Voters:

    “Like most noneconomists, he suffers from anti-foreign bias, a tendency to underestimate the economic benefits of interaction with foreigners. Popular metaphors equate international trade with racing and warfare, so you might say that anti-foreign views are embedded in our language. Perhaps foreigners are sneakier, craftier, or greedier. Whatever the reason, they supposedly have a special power to exploit us.

    There is probably no other popular opinion that economists have found so enduringly objectionable. In The Wealth of Nations, Adam Smith admonishes his countrymen: “What is prudence in the conduct of every private family, can scarce be folly in a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry.”

    Even theorists, such as Paul Krugman, who specialize in exceptions to the optimality of free trade frequently downplay their findings as abstract curiosities. As Krugman wrote in his 1996 book Pop Internationalism: “This innovative stuff is not a priority for today’s undergraduates. In the last decade of the 20th century, the essential things to teach students are still the insights of Hume and Ricardo. That is, we need to teach them that trade deficits are self-correcting and that the benefits of trade do not depend on a country having an absolute advantage over its rivals.”

    http://reason.com/archives/2007/09/26/the-4-boneheaded-biases-of-stu

    • “Information is the currency of democracy.”
      Thomas Jefferson

  5. Conservatives have always been anti free trade, they don’t like change, they don’t like foreign things, they have long list of complaints that government is supposedly fixing or protecting us from.

    Liberal party has become french catholic socialist party, ndp is protestant socialism from Sask and conservatives are conservatives no matter where they are born. Right wing, free trade, liberalism has completely disappeared from Canada. None of the major Canadian parties are pro free trade, all the government has to do is eliminate tariffs and other barriers to foreign goods and Canadians would see a boost in our productivity and wealth creation.

    Instead of embracing change and progress, MPs in all our major parties are servile bien pensants who don’t want change and are scared of progress.

  6. Take this as a warning sign..
    They see our country is in need of immediate money reserve.
    Debt level is too high and the country heavily relies on import goods.
    Don’t be narrow-sighted.. there are always multilateral relations.

  7. The Conservatives under Mulroney (rightly) replaced tax revenue from tariffs that were eliminated as a result of NAFTA with the GST. Harper “the economist” tries to sneak one by the goalie by reversing sound policy.

  8. This is truly anti-trade, and it’s the last thing they should be doing when everything in Canada is more expensive than in the US. This is not helping that situation.

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