The Grand Plan Unfolds...Slowly

  

The road ahead for Canada became better delineated this week with the announcement that the winning proposal to build Canada’s new submarine fleet was the German Norwegian TKMS bid which beat out the South Korean Hanwha proposal.  While the ultimate deal still must be finalized and Hanwha is the reserve bidder, in the world of defence contracts, being the reserve winner is not much of a consolation prize. In the end, the NATO relationship with Germany and Norway seemed to be the deciding factor even with the many industrial benefits both bids promised.  And in terms of regional effects, the TKMS bid will have major economic impacts on Nova Scotia (Halifax) and there are a small number of deals proposed with companies in British Columbia, Mississauga, Montréal and Trois-Rivières.Unfortunately, there will be no steel contract for Algoma in Sault Ste. Marie.

In my earlier thoughts on the plans to evolve Canada’s economy and international relationships, I ventured that Canada had come to a fork in the road: the path of continued integration with the United States versus establishing an east-west trade flow through Canada linking Europe with the Asia Pacific.  Canada’s defence policy purchases are part of this economic policy with the fighter jet project offering a choice between Europe and America and the submarine contract offering a choice between Asia-Pacific and Europe. I also ventured that for the time being, Canada was essentially dangling the prospects of both but needed to make some choices.  The choices are being made but the process is unfolding very slowly.

In terms of economic and political diversification with Europe and Asia, while Canada will continue to pursue opportunities with the Asia-Pacific, it is with Europe that Canada will increasingly try to link with both economically and with respect to defence and security especially when it comes to the Arctic.  In a sense, the Innisian line that the civilization of Canada settlement is essentially the civilization of Europe still holds and we look towards the Atlantic more than the Pacific.  Despite this, participating in Eurovision is not quite the same as being a member of the EU.  One hopes that despite not acquiring the Hanwha submarines, Canada will still make important defence purchases in South Korea and Japan if it is to be serious about having an east-west global economic vision.

However, going with the TKMS bid also means that the likelihood has grown that Canada will likely not go with the Swedish Gripen jets.  In the end, even if we maintain the current volume of trade with the United States and grow trade with all our other partners, the United States will still be our dominant trade partner for decades to come.  Given that we share the North American continent with them, we will also need to maintain defence and security arrangements with them which means the 88-plane F-35 purchases is a done deal.  It is only a matter of an official announcement.  The only question is whether we will go with a dual fleet and order additional planes from Sweden.  After all, in the early 1980s, Canada deployed nearly 140 fighter jets and there is room to do both.  In the world of federal deficit financing, what's a few more billion dollars?

Continuing the F-35 purchases also has its political dimension.  We are going to be hammering out the details of a new trade arrangement with the United States, and it is unlikely we will back out of the jet purchases and risk incurring additional Trumpian wrath.  We are also likely to give in on several other fronts including aspects of our supply management, digital services and increased North American content in manufacturing with integrated supply chains (auto production). And we will likely still face tariffs at some base level because that is the current state of U.S. trade policy and our relationship with them is not that special.  Not that it ever was really.  It has always been America first but previous administrations were more diplomatic regarding our junior status whereas the current one is simply more up front.

Of course, the Americans apparently seem keen on a “Fortress North America” approach but such an approach seems at odds with the east-west trade diversification strategy that we are demonstrating we are pursuing.  It also will likely lock us into a relationship where the U.S. will have preferential access to our natural resources limiting our ability to realize their maximum economic potential.  While we may think we are negotiating Fortress North America, the other side will interpret it as Fortress America. So, the key question is can we negotiate the best deal possible without locking ourselves into an even tighter economic straitjacket while we wait for growth in non-U.S. trade to gradually reduce our economic dependence of the United States? 

 

Trump, Brexit and the EU

On his recent state visit to the UK, US President Donald Trump waded into the Brexit issue and Britain’s EU relations with a number of pronouncements that included tweeting that Britain should throw off the “shackles” of EU membership and also offering the promise of a US trade deal once they left.  If Britain follows through and leaves the EU, a trade deal with the United States would be an important consolation prize but one hopes the British have been watching the US and its ongoing relationship with Canada and Mexico to know that even with trade deals, economic relations with the current US administration can be a bit of a roller coaster.

Of course, President Trump is up to more than simply trying to throw the British a lifeline.  Trump and indeed a chunk of like-minded American policy thinkers have never liked the EU and have been waiting for Euro and the EU to fall apart and fail.  Indeed, one perspective in the Harvard Business Review a number of years ago refers to the EU as a failed experimentbecause of its slow recovery from the 2008-09 recession, the undemocratic aspects of the EU Commission and the failure to create a more integrated federation.  Of course, if Europe was successful in creating a more integrated federation, it would likely spark the ire of Donald Trump even more.

Indeed, with his attacks on the relevance of NATO and the EU, it has been noted that Trump has been trying to disrupt the EU.  While the presence of a united Europe which shares common economic and cultural values and supports a liberal international order, with the United States should be seen as a natural ally, the current President of the United States essentially sees a united Europe as a large bloc that would better serve American interests by being shattered into smaller units. These smaller units can then be played off one against the other for short term economic and political advantage whether it is trade deals that benefit the United States or other short-term alliances.  

Needless to say, the Europeans have a right to be miffed not only with the UK which with Brexit has become a disruptive rather than constructive force in Europe but also with President Trump who is openly hostile to the EU.  Of course, Britain’s behaviour is probably rooted in its history as it spent centuries making sure that continental European powers did not come together to form an alliance.  Once they did with the creation of the EU, a cynic would argue that Britain eventually joined to be a disruptive force from within – indeed, De Gaulle thought they should not be admitted.  The best thing that Europe can do if Britain leaves the EU is to work towards sticking together and becoming more united, but this is going to be a tough task.  

What's Wrong With This Picture?

Well, Northern Economist is in Northern Europe on the way to a conference in Stockholm later this week. It is a lovely Sunday afternoon here with families out strolling enjoying the mild September weather in a major European city – Copenhagen to be precise.  The number of people out today in Copenhagen has been augmented by the holding of a Every Step Counts walk for the environment and the paths along the canals are packed with walkers as well as tourists.

What is also interesting about the canals is scenes like the one below:

 

Numerous boats are out with groups of people sitting around a table enjoying snacks and the passing scenery as they boat along.  Notice anything interesting about this picture?  Well, it turns out that Copenhagen seems to be a lot like Vegas when it comes to open carry alcohol.  Not only can you walk the streets while enjoying a beer but you can drive a boat while partaking in wine and beer also.

It is very important to drink responsibly but I do not think that responsible drinking is incompatible with drinking in public.  You certainly could not get away with drinking and boating in Canada but one wonders how it is that Denmark - and indeed much of Europe - can handle this but we in Canada cannot despite our socially liberal pretensions.  The canals in Copenhagen are quite crowded and yet here we have groups of people enjoying picnic lunches and wine while boating along. I won’t even get into a discussion of why Denmark has tons of people on bikes and yet no one seems to be wearing a helmet.

Perhaps Danes and Europeans in general are more mature and able to take more personal responsibility when it comes to personal safety?  It is certainly something I will think about some more over the next few days. However, in the absence of truly innovative change we in Canada will just have to bear with things the way we are.