Foreword Co-Authored By Andrew Chilvers And Bob Brewer
Global Trade: Combating protectionism and the pandemic
The past 18 months were a huge shock to international trade as increasing protectionism and Covid-19 wrought havoc with all previous forecasts and economic roadmaps.
Many business analysts predicted that the double whammy of protectionism and pandemic would spell an end to globalised trade.
Indeed, if we roll back a few years many economists were already warning that international trade was tapering off even before President Trump, Brexit and the coronavirus. As older, more established economies converted to the new digital economy, less goods were being shifted around the world. This coincided with the rise of China as an economic superpower, the proliferation of international laws, regimes and treaties governing trade and the increasing interconnectedness of supply chains.
But this complex global trading pattern was also the architect of its own undoing, creating financial instability, a trade imbalance, climate change, a rise in cyberattacks and the spread of the pandemic through trade networks. These crises then reverberated across the globe, appearing in different jurisdictions and spreading across local borders.
The Trump administration’s moves to address the trade imbalance with other trading partners was a catalyst for the resulting rise in protectionism – overnight he was using tariffs as a tool. This was particularly the case with China, where supply chains were impacted as businesses had to work around the tariffs, causing supply chain diversification and huge issues around the rules of origin.
This imposition of tariffs has now forced US businesses to take on higher costs at exactly the wrong moment, ie during a global pandemic. This has also had a knock-on effect with other US trading partners such as Canada, Mexico and the EU, which are all re-evaluating their trading relations with China, particularly around the rules of origin to ensure products are not using mainly Chinese components.
What are the opportunities and challenges that face global and regional trade in your jurisdiction?
Canada is a country that is highly integrated with and influenced by our trading partners – and the largest trading partner we have is definitely the US. As was the case in the US, the pandemic hit Canada hard. It was the second worst recession behind the Great Recession of 2008-09; Canada’s contraction was 13% or $C1.3 trillion. Both the exports and the imports were down 13% and 12% respectively. In Canada, the main areas of foreign direct investment are manufacturing, mining, oil and gas extraction and management of companies, services, and enterprises. What really came to light as a result of the pandemic was how reliant we are on trade, foreign investment and the interconnectedness of global trade. The increasing integration of trade during the past few decades made that contraction worse. Briefly, the US is number one in terms of trading partners, then the EU, but in recent years the prevalence of free trade agreements outside the US and EU have been increasing. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came from the ashes of the Trans-Pacific Partnership (TPP) and it’s an illustration of how our trading partners are slowly but surely being diversified because of this heavy reliance that we have on the US and EU.
What is the impact of non-preferential rules of origin in the post-pandemic trading environment in your jurisdiction?
The biggest challenge that we’re facing is going to be protectionism; because we are such an export heavy country, the increasing level of protectionism, especially in the US and the UK, will really increase the importance of diversity of our markets.
It’s huge. Traditionally we have relied heavily on the US and EU as our trading partners. But we do have to think about what it looks like to increase our diversity. And there’s also our reliance on China. Before the US-China trade war, it was much easier to order products without too much thought, but with the rules of origin this has become more problematic.
For Canada, most of the rules of origin requirements come from our free trade agreements. In terms of the harmonisation issues, it is less of an impact because we already have it baked into our agreements. Regarding the Canada-United States-Mexico Agreement (CUSMA), it allows us to have those rules of origin dealt with between the US and Mexico.
Through the Canadian European Free Trade Agreement, we have a similar rules of origin framework with the EU. But the US and the EU don’t have one. What a lot of our producers really have to be mindful of is to make sure there are no issues associated with trying to get to Canada, then into the US from the EU or vice versa. That’s something that we always have in the back of our minds from a practical perspective.
I also wanted to speak about the rules of origin regarding the ecommerce world. The world was locked down, so walls went up that previously weren’t there. What also happened, conversely, was the realisation that there were really no barriers from an intangible perspective. The rise of e-commerce wasn’t just about different jurisdictions, it was also between being able to get to different markets that you wouldn’t get on Main Street. Main Street is accessible via foreign jurisdictions because of the Internet, so there’s a fascinating rules of origin piece there.
Predictions: what do you think global and regional trade integration will look like in your jurisdiction in five years?
I’ve been practising for almost 20 years, and I’ve got to ask, when was the last time we had consumers who were interested in the source of international goods? Growing up in the 1970s and ‘80s, there was no way that anyone would ask about it. They just cared that the item they wanted showed up or they were able to go to the store and buy it.
Now there’s a ground level grassroots recognition that trade matters; a recognition that relationships between countries matter as it relates to trade. Ethics was never something that really played into the determination of whether a consumer bought goods. That has changed significantly.
That is not only change for the consumer and their ability to make rational decisions. It is now impacting in a material way that businesses operate and the way that they will now conduct themselves. It’s beyond just the consideration of services. Five years into the future, I think that’ll increase the impact on how consumers view and are now more attuned to international impacts.
International trade considerations will increase and not only on individual consumers, but on company consumers. There will be a thought at the state level and the industry level of how do they consume, who do they consume with? The biggest blockers to trade for us will be the shift to determine how do we mitigate risk?
That is coming out of this recession, figuring out how we mitigate risk from a Canadian perspective. We want to participate more in the world, so how do we mitigate the risk associated with increasing protectionism? That’s going to be increasing and diversifying the reliance on different markets. How do we mitigate the risk against our supply chain?
That’s going to be taking a harder look at who produces what and where. Can we have the same input produced in different jurisdictions that if one barrier goes up in one trade supply line, it can be mitigated elsewhere?
