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Canada’s New American Challenge

With the U.S. administration now engaged in trade talks regarding the Trans-Pacific Partnership, and President Obama’s intention, expressed in his last State of Union address, to embark on a free trade arrangement with the European Union, it is clear that trade policy in the U.S. is in for a major shift.  The Canada–U.S. commercial relationship, as we know it, will surely be in for a change.  When you trade $1.5 billion of goods daily, neither country can remain indifferent if new commercial arrangements modify the status quo. 

If we add to this the emerging energy revolution—related to shale gas and shale oil—that is bound to influence the U.S. economy, we can conclude that the U.S.’ major trading partners will soon face new challenges. It is becoming more apparent that the U.S. is heading toward energy self-sufficiency. By 2017, according to the International Energy Agency (IEA), the U.S. is expected to be the largest oil producer in the world.  By 2020, it could be a net exporter of natural gas, and in 2030, the U.S. could be a net exporter of petroleum.  This will have a direct impact on prices of those commodities, the cost of doing business and the potential growth of the U.S. manufacturing sector. 

No one doubts the ingenuity and the innovative character of the U.S. economy.  With a competitive advantage sparked by this new energy picture, one can conclude that the American economy may be in for important, positive and significant growth.  Despite the uncertainty often associated with its domestic politics regarding deficit and debt issues, the U.S. economy is certain to be gradually transformed.  The current Canada–U.S. commercial relationship, which is the largest in the world, will also be directly affected. Canada cannot afford to ignore what  this new American challenge represents for its own future.

For Canada, this will require an even greater effort to diversify and pursue more aggressively new or alternative markets. It will also have to engage in more research and development, aim for greater productivity, attract more immigrants, and invest in greater manpower training. With our energy, our multiple natural resources , and our competitive high-tech sectors, Canada has already engaged with moderate success in diversifying its markets.

Asia and South America’s recorded gains in exports have helped offset some of the effects from the Great Recession south of the border. In addition, the ongoing suspense regarding the Keystone Pipeline from Alberta to the Gulf of Mexico has actually led the Canadian government to consider alternative pipeline development, which could lead to greater mobility toward new markets—including Asia, Europe and our own domestic market in eastern Canada.

Both Canada and the U.S. still have much in common. Both countries have stable democracies and shared values. Very often, our interests coincide, and it is in our mutual interest to nurture our close economic ties. We are part of each other’s supply chain. We have NAFTA, similar business practices and a common border. 

Despite the need to diversify, however, we will remain highly dependent on economic events in the United States.  While Canada is still the number-one exporter of oil and gas to the U.S., exports have dropped in the last couple of years.  The impact of lower prices caused by domestic natural gas finds has also had an effect on Canada’s hydroelectricity exports.  Like it or not, our economies are too integrated and interdependent for Canadians to be oblivious to changes in our neighbor’s backyard.

With 68 percent to 70 percent of our exports going to the U.S., we clearly cannot lose sight of the importance of our principal market—but we cannot remain static in our own trade initiatives. America is changing, and Canada must face this new challenge before it’s too late.

*John Parisella is the former Québec delegate general in New York and currently a visiting professor at the University of Montréal’s International Relations Center. He is also a Member of the Board of Directors of The Montreal Council on Foreign Relations.

Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Canada, energy, Canada-U.S. relations

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