Canadian Elections: Further Proof that Our Northern Neighbors Are Smart (and that Free Trade Isn't Political Poison)

The news about the timely death of what's-his-face has dominated American TV, so you may be excused for failing to notice that Canada had a big national election yesterday, and that the results of that election provided further proof that, when it comes to trade and tax policy, Canada is putting its southern neighbor to shame:

The Conservatives have finally captured their coveted majority government in an historic election that vaulted the NDP to a stunning second-place finish, making them the official Opposition, pushing aside the Liberals to a humiliating third.

At the Telus Convention Centre in Calgary, Conservative Leader Stephen Harper expressed elation at his huge win.

"What a great night," Harper told more than 1,500 cheering Conservative supporters.

"A strong, stable, national Conservative government," he said.

Readers of this blog may recall the not-so-subtle man-crush I've harbored for the Harper government's smart corporate tax and trade policies over the last couple years.  As I said last summer:

Since the global recession hit two years ago, Canada has implemented a broad array of free market tax and trade policies....

At the onset of the recession, Prime Minister Stephen Harper’s government moved aggressively to improve Canadian manufacturers’ global competitiveness. After extensive consultations with Canadian industries, Ottawa unilaterally eliminated tariffs on 1,755 different types of machinery, equipment and other manufacturing materials.

The Department of Finance presented a straightforward rationale for the move: “By reducing the cost of importing key factors of production, tariff relief encourages innovation and allows businesses to enhance their stock of capital equipment.” The Department projected that Canada’s complete liberalization of more than C$5 billion in imports will provide an additional C$300 million in annual duty savings for Canadian businesses.

Canada didn’t stop with tariffs. It also slashed the corporate tax rate to 18 percent. And the rate will fall farther -- to 16.5 percent next year and to 15 percent a year later.

The Harper government reasoned that such tax cuts would help make Canada one of the world’s most attractive destinations for international business investment. And they certainly have a point: Canada’s 2010 marginal effective tax rate is more than 16 percentage points lower than the United States’ 34.2 percent rate and two points below the OECD average.

And Canada has pursued free trade agreements (FTAs) with a passion....

And what, pray tell, was the super-awesome Conservative campaign platform that secured this surprising landmark victory?  Oh, right:

Harper campaigned on a message that the New Democrats stood for higher taxes, higher spending, higher prices and protectionism....

One outcome of Harper’s victory is that planned corporate income tax cuts will move ahead. Canada reduced the federal rate by 1.5 percentage points to 16.5 percent on Jan. 1, and it will fall to 15 percent in 2012 under legislation passed in 2007…

Canada is relying on business investment to help lead the recovery. Energy companies have been a main driver of spending, allowing the country to grow in the fourth quarter at a faster pace than any other Group of Seven country.

To recap: low corporate taxes, free trade and other business/investment-friendly regulatory policies have led to impressive economic growth, and publicly promoting those policies has catapulted Harper's Conservatives to a groundbreaking new majority government in Canada.

Canadians are smart people, eh?

Tuesday Quick Hits

Happy belated early St. Patty's Day.  Here are some links to keep your lucky streak going:

• AEI's Phil Levy writes a great column about the likely economic aftershocks of the Japan tragedies caused by, among other things, global supply chains.  The WSJ follows (intentionally or not) Levy's lead with an interesting report on how Japan's problems should affect its exports to China (and thus Chinese exports of goods typically made from the imported Japanese inputs).

• Speaking of Levy, he provides a very good explanation of why China's Indigenous Innovation policy can't achieve China's long-term policy goals but should be a priority for the United States because of the significant near-term pain it'll cause American companies.

• The absurd, needless expiration of the US Generalized System of Preferences cost American manufacturers $54.4 million in January alone.  Awesome.

• Last week's BEA release of the US trade deficit stats elicited a typically awful write-up from the AP.  The forces of good appropriately correct the journalist responsible here, here, here and here. 

• The Heritage Foundation's Walter Lohman and Derek Scissors deftly analyze something that I noticed about a year ago: Australia's China policy is very, very sound.  And, as if on cue, the Aussies provide even more proof of this fact.

• I selfishly hate the relatively new starting date for Daylight Savings Time because it makes getting out of bed to go for a jog excruciatingly difficult, but now I have a more altruistic, economic reason to hate it.  Bonus.

• In reporting on the latest developments in the longstanding US-Canada softwood lumber dispute, the Economist provides another great lesson on the fleeting benefits and long-terms costs of protectionism. 

• The Washington Post confirms what we already knew: the White House, not USTR, drives American trade policy. 

• More excellent destruction of self-avowed protectionist Ian Fletcher's public "arguments" by Cafe Hayek's Don Boudreaux here, here, here and here.  To my knowledge, Fletcher has yet to respond directly to any of Boudreaux's killer critiques.

• And finally, this is absolutely hilarious (h/t Radley Balko).

Enjoy!

New Op-Ed: "G-20 Summit: Fresh Winds of Economic Leadership from the North"

I have a new op-ed on FoxNews.com today.  Here's the tease:

Leaders from 19 countries and the European Union will gather for the G-20 summit in Toronto beginning June 26 to discuss how to stem the global recession and get the world back on the path to strong, stable economic growth. They picked a good spot, as the assembled leaders could learn a lot from their host country.

Since the global recession hit two years ago, Canada has implemented a broad array of free market tax and trade policies. As a result, our neighbor to the north has surpassed an increasingly statist, mercantilist United States in The Heritage Foundation’s Index of Economic Freedom. More importantly, Canada is emerging from the “Great Recession” much more rapidly than the U.S. and virtually every other G-20 participant as well.

Read the whole thing here.  Go ahead.  You know you want to.

Canada's Senate Approves Canada-Colombia FTA: Good for Them, Bad for the US

AFP reports that Canada's Senate approved the Canada-Colombia FTA today, only a few days after the Canadian House of Commons did the same:

A Canada-Colombia free trade pact is expected to be signed into law here next week, after Canada's senate voted in favor of the agreement late Monday, an official told AFP Tuesday.

The trade legislation adopted last week by members of parliament must still be signed by Governor General Michaelle Jean, representative of Queen Elizabeth II, said Monika Bujalska, press secretary to Trade Minister Peter Van Loan.

"This is expected next week," she said.

Canada's senate passed the bill despite some reservations about "the seriousness of human rights violations" in Colombia, which had held up signing the accord for two years.

Both governments must still set a date for the free trade agreement to come into force.

The deal is expected to boost Canadian investment in Colombia's mining and oil sectors, as well as increase agricultural exports, primarily wheat and barley. Canada-Colombia trade topped 1.3 billion dollars in 2008, according to the latest figures.

Colombia's Congress approved the FTA back in August 2009, and President Uribe gave the agreement his final approval shortly thereafter.  The agreement still needs to be ratified by Colombia's constitutional court, which (so I'm told) is expected as early as September 2010.  So despite the fact that the two countries haven't set a date for the agreement to enter into force, it could be as early as July 2010 (as IBD's Monica Showalter noted last week)this Fall.  Meanwhile, the US-Colombia FTA, completed and signed about two years before the Canadian agreement, has absolutely no chance of entering into force this year due to continuing fecklessness by the Obama administration and its Democrat colleagues in Congress.

The Chamber's John Murphy comments today on this development and its implications for US businesses:

Last night, Canada’s Senate gave final approval to the Canada-Colombia Free Trade Agreement. For months, the U.S. Chamber and others have warned that the Canada-Colombia FTA will put U.S. workers and farmers at a marked competitive disadvantage in Colombia. Canadian wheat farmers will be able to sell their crop to Colombians at a discount, and Canadian manufacturers will be better able to undercut their U.S. competitors in the Colombian market.

Unfortunately, this scenario is already unfolding. Following implementation of a new trade accord between Colombia and Mercosur, the U.S. share of Colombia’s market for soybean meal, yellow corn, and wheat dropped by 67%, 53%, and 37%, respectively, in 2008-2009.

In other words, a newly-minted Canada-Colombia deal is fantastic news for Canada and Colombia and awful news for US exporters (and consumers).  Grrrreat.

And in case you're wondering, there was nary a mention of any of this today from our wonderful USTR.  (Of course not.)

UPDATE:  My original post was wrong about the earliest that the Canada-Colombia FTA can enter into force.  I've corrected the post above to include mention of Colombia's constituional court and a revised timeline for implementation.

Canada-Colombia FTA Rolls On, US Watches from the Sidelines

Over the last few months, I've frequently opined on how our hockey-loving neighbors to the North have been runningskating circles around the US government when it comes to international economic policy.  While we embrace senseless mercantilism, they rush to open their markets to import competition (and its glorious cost-reduction benefits).  While we kvetch about foreign currency practices, they see the bright side and adapt.  While we maintain the second-highest corporate tax rate in the world (and seemingly add new tax burdens everyday), they lower their corporate tax rate and implement plans to reduce it even further.  And, of course, when we prudishly refuse to enact signed Free Trade Agreements with Panama, South Korea and Colombia, they rush to finish and implement as many FTAs with as many partners as possible.  I'll have a lot more to say about all of this in the next few days (hint, hint), but tonight let's just focus on the last item on the depressing tick-list above, FTAs.  As Bloomberg reports:

Canadian lawmakers today approved a free trade agreement with Colombia, a move that may give its agricultural producers an advantage over U.S. competitors in the Latin American country.

Canada’s House of Commons voted 188 to 79 in favor of the accord, which now moves to the Senate for final approval. The two countries began negotiations in 2007 and signed the agreement in 2008.

“In adopting this free trade agreement, Canada will be in a very strong competitive position vis-à-vis our other competition around the world and this will mean a great deal to our agricultural sector,” Canadian Trade Minister Peter Van Loan told reporters earlier today.

Colombian Trade Minister Luis Guillermo Plata said in an April 28 interview that Canadian exporters may gain as U.S. lawmakers delay approval of their free-trade agreement. Plata traveled to Ottawa and Washington earlier this year to court lawmakers in a bid to build support for the trade accords before Colombian President Alvaro Uribe’s term expires in August.

“Many of the things that we buy from the U.S. we could buy from Canada and we could buy tariff-free,” Plata, 42, said in the interview, pointing to purchases of wheat, barley, corn, machinery and mining equipment....

Prime Minister Stephen Harper’s governing Conservatives have made strengthening ties with Latin America a priority in an effort to broaden markets for Canadian commodities and reduce the country’s dependence on the U.S. economy.

Harper’s Conservatives lack a majority of seats in Parliament and needed the support of the opposition Liberals to pass the legislation. The Liberals amended the agreement to include yearly assessments of human rights conditions.

I've repeatedly gone over the obvious trade and foreign policy implications of the Canada-Colombia FTA and the US-Colombia FTA, so let's leave those important issues alone for now.  Instead, let's look at the sheer politics of the issue. The Bloomberg report makes clear that Canadian PM Stephen Harper lacked the numbers to force the FTA through Canada's lower chamber on a strictly party-line vote.  So he engaged his opposition, worked out a side agreement on human rights, and got the job done (by a huge margin, no less).  Now, let's contrast that with the Obama administration, which (i) has overwhelming partisan majorities in each chamber, (ii) by law (under Trade Promotion Authority) dictates the introduction and timeline of the FTA's implementing legislation, yet (iii) can't even get the economically meaningless US-Panama FTA considered in either congressional chamber.  I'd say that's a pretty strong indication of the President's political willingness to engage on these pending FTAs, wouldn't you?

And given that moving on trade issues requires oodles of political will, is it any wonder at all that Harper's government is sprinting past Obama's?

(Quick answer: no.)

Wednesday Quick Hits

I'm still digging out of cardboard boxes, so here are some headlines/links to keep you occupied until I'm fully functional again:

• India still talking tough on carbon tariffs, this time at the ongoing climate talks in Bonn, Germany.

• And speaking of Bonn, things are going, ahem, not-so-smoothly. 

• EU to US: "Hey, maybe you could help the WTO's Doha Round out by, you know, actually saying what you want instead of just repeating the same empty rhetoric and doing nothing."

• Canada's international economic sanity continues to make the United States' positions look (deservedly) bad - this time on China currency and opposition to the "global bank tax."

• Canadian 1Q economic growth tops expectations, doubles-up US growth. (Gee, I wonder why?)

• Czech President Vaclav Klaus: "Let's face it, people, the Eurozone has already collapsed.  And boy were we right to avoid that boondoggle."

Ok, that's it for now.  I promise to be a better blogger soon.  But these darn boxes unfortunately don't unpack themselves.

Canada Dominates while Washington Fiddles (or "Even More Proof that Canada Makes the US Look Like a Hoser")

It's looking more and more like my feared "bizarro competitive liberalization" is becoming reality in the United States.  First, it was the EU-South Korea FTA potentially pushing the US to ratify its FTA with Korea, and now the Canada-Colombia FTA might do the same for the US-Colombia agreement.  This is just great...  because, you know, nothing says "we support free trade" like being forced to ratify economically beneficial trade agreements with major diplomatic allies by threat of losing export market share.  Awful.

Here's Boomberg with the embarrassing details (with a nice little addendum at the end by the US Chamber of Commerce's John Murphy):

Colombian Trade Minister Luis Guillermo Plata said Canadian exporters may gain as U.S. lawmakers delay approval of a free-trade agreement with the Latin American country.

Plata was in Ottawa to court lawmakers from Canada’s main opposition Liberal Party in a bid to cement their support for a trade accord and assure its passage in Parliament. He testified at a committee hearing yesterday, met with Liberal leader Michael Ignatieff and dined twice with other Liberal lawmakers during his two-day visit.

“Many of the things that we buy from the U.S. we could buy from Canada and we could buy tariff-free,” Plata, 42, said, pointing to purchases of wheat, barley, corn, machinery and mining equipment.

“The U.S. has to think about it,” he said in an interview at the Colombian embassy in Ottawa. “If they come late to the party, and Canada has been able to move forward and been able to displace them from the market, it will be very hard to reclaim that market.”...

President Barack Obama has said he would press for passage of free-trade agreements with South Korea, Panama and Colombia, though he cautioned that “different glitches” must first be negotiated with each country.
The administration wants to balance its goal of doubling U.S. exports with concerns from Democratic lawmakers and labor unions that the trade agreements fail to align labor, tax and environmental policies.

Plata, who met with U.S. Trade Representative Ron Kirk last week in Washington, said U.S. officials initially signaled to him that lawmakers would make progress on trade accords after the U.S. Congress passed new health care legislation.

“To my surprise I find a very big disconnect between the speech and the reality,” he said. “The reality is that I don’t see the U.S. moving.”

Colombia was the U.S.’s eighth-largest market for corn last year, down from sixth place a year earlier, according to data from the U.S. Department of Agriculture. Its ranking for wheat fell to 10th place from seventh place in 2008....

If Canada seals a trade deal with Colombia, it may spur U.S. lawmakers to expedite the delayed accord, said Walter Bastian, the U.S. Commerce Department’s top official on Latin America.

U.S. trade talks with Chile were expedited in similar fashion after Canada cemented a deal with the South American country, he added.

“When people started to realize the lost business opportunities, it spurred negotiators to get it done,” Bastian said in an interview in Nicaragua today. “The rest of the world isn’t standing still. We don’t want to be left out of the game.”...

Prime Minister Stephen Harper’s governing Conservatives have made strengthening ties with Latin America a priority in an effort to broaden markets for Canadian commodities and reduce the country’s dependence on the U.S. economy.

Harper’s Conservatives lack a majority of seats in Parliament and need the support of opposition lawmakers to pass legislation. The Liberals have said they will back an amended version of the agreement that includes yearly assessments of human rights conditions....

The Chamber's Murphy adds via email: "In Washington last week, Minister Plata observed that the U.S. share of Colombia’s market for soybean meal, yellow corn, and wheat dropped by 67%, 53%, and 37%, respectively, in 2008-2009, following implementation of a new trade accord between Colombia and Mercosur.  That accord eliminated tariffs on those imports from Brazil and Argentina."

Me: I guess we're all mercantilists now.

Canada Continues to Make the US Look Like a Hoser

Boy, the Canadians are just dominating their southern neighbor these days.  First, they announced the unilateral elimination of all industrial tariffs in order to boost Canadian manufacturers (as US officials were complaining about the trade deficit and embracing mercantilism).  And now, they've announced an amazingly sane response to rapid currency devaluation by... wait for it... the United States.  Here's BNA (subscription) with the embarrassing details:

The government will not intervene in the Canadian dollar's continued increase in value compared to the United States dollar, but will instead focus on making businesses more competitive so they can better adjust to a stronger currency, Prime Minister Stephen Harper said April 7.

The dollar's value against other currencies is not the government's primary concern, but rather the level of competitiveness of Canadian industry, Harper told reporters at a news conference in Toronto with Ontario Premier Dalton McGuinty. “This is outside the purview of the government of Canada, outside the responsibilities of the prime minister,” he said.

The government is aware of concerns over the dollar's value, but the Bank of Canada is solely responsible for monitoring the value of the currency as part of its process of setting its trendsetting interest rate, he said. “It is the Bank of Canada that independently guides Canadian monetary policy,” he said.

The Canadian dollar (loonie) had moved above parity with the U.S. dollar for parts of April 6 and 7, although it returned to slightly below parity by the close of trading on each of those days....

Meanwhile, the Conference Board of Canada stressed April 8 that the best options for the Canadian economy to respond to a dollar at or near parity with its U.S. counterpart is to boost business productivity growth and expand the internationalization of individual firms.

Canada's solid banking system, strong domestic economy, relatively healthy fiscal situation, and wealth of raw materials will support a dollar at par with the U.S. dollar, Conference Board chief economist Glen Hodgson said in a statement accompanying a report entitled “Learning to Live With a Strong Canadian Dollar: Four Options for Business and Governments.”

“For firms that are willing and able to adapt, a strong dollar may be just the challenge that unlocks new economic potential through enhanced innovation, faster productivity growth, and expanded internationalization,” he said.

Improvements to productivity growth, both of individual firms and the overall Canadian economy, should focus on promoting stronger investment in physical and human capital, reducing regulatory barriers, and re-energizing free trade and investment within North America and globally, he said. Firms should also use multiple approaches to improve their participation in the global economy, as firms and industries that have more ways of hedging their operations are better positioned to reduce the financial risks associated with currency fluctuations, he said.

The aforementioned Conference Board report is available here.  Now, students, please compare and contrast how Canadian politicians have addressed the effects of US dollar devaluation with how American politicians have handled the pegged Chinese RMB.  Please allow me to satirically paraphrase:

• Canadians: Hey, the Americans' currency policy is their business; and monitoring of nations' currency policies is a central bank issue, not a trade issue; and the cheaper dollar can benefit many of our producers, so we plan to adapt and take full advantage.  (Now, who's up for some hockey, eh?)

• Americans: No fair!  You're cheating!  We demand you stop or else!  Wahhhhhhhhhhhh!  (I'm Chuck Schumer/Arlen Specter/Lindsay Graham, and I approve this message.)

Like I said, embarrassing.

Canada Makes Its Southern Neighbor Look Like a Hoser

Reuters reports that the Canadian government will permanently and unilaterally eliminate import tariffs on a wide range of industrial inputs:

Canada's Conservative government pledged on Thursday to become the first G20 country to permanently eliminate all import tariffs on inputs for manufacturers by 2015, and most cuts will take effect immediately.

The tariff cuts on things like raw materials will save companies about C$300 million ($290 million) in a unilateral move that Ottawa sees as one of the boldest measures in its 2010 budget.

"Canada, as a nation whose prosperity is greatly dependent on trade, clearly understands the importance of open markets," the budget said....

The new measures will reduce the number of items subject to import duties ranging from 2 percent to 15.5 percent to 381 items from 1,541 items as of March 5, and that number will fall to zero by 2015.

At that time, the only imports subject to duties in Canada will be supply managed goods in the agricultural sector and consumer products.

The government said its pre-budget consultations showed that small and mid-sized businesses were enthusiastic about the tariff cuts, which will cut costs and paperwork.

Very cool.  With its big announcement, Canada joins several other countries -  including Mexico, India and the United Kingdom - who have recognized the critical importance of imports to their economies and thus implemented government policies reducing barriers to foreign goods, services and investment.  Good for them.

Now granted, the new Canadian trade policies aren't perfect - as Terence Corcoran of Canada's National Post points out, it's both incongruous and unfair for the Harper government to help Canadian businesses with tariff cuts but not to extend the tax savings to Canada's consumers by also eliminating tariffs on farm and downstream products.  Nevertheless, these tariff cuts should be loudly applauded for two big reasons.  First, news of a major developed economy embracing unilateral tariff liberalization to help its domestic manufacturers will provide a very public counterweight to the traditional protectionist myth that foreign imports somehow harm industrial producers and jobs - especially as those companies become more successful.  It also will allow everyday folks (who don't obsess about trade issues like me) to more easily see and understand how protectionism, not free trade, undermines domestic production and jobs.  And as that happens, other tariffs - like those remaining ones in Canada - will inevitably fall (especially with guys like Corcoran loudly calling for their elimination).

Second, Canada's permanent(!) unilateral liberalization (and that of other countries) will stand as a constant reminder of free market sanity - one that dramatically undermines the mercantilist pabulum coming out of many governments these days, including Canada's southern neighbor, the United States.  Just compare and contrast: 

• The Harper government is eliminating import tariffs and lowering the corporate tax rate for the express purpose of increasing its domestic companies' productivity and global competitiveness, while...

• The Obama government's new trade agenda refuses to acknowledge that imports even exist, no less benefit domestic manufacturers (despite the mountains of statistical and anecdotal evidence that such imports are critical to US businesses, and that US tariffs hurt American families).  Oh, and our corporate tax rate remains one of the highest in the world.

Embarrassing, eh?