Canada is closed?
Rising protectionism and anti-immigration changes are at odds with other policy objectives
One of the things I care a lot about is policy coherence. To riff off an OECD definition, this is the idea that if governments are going to achieve their goals, then they must have the capacity to design, implement, and monitor coherent and integrated policies and that requires identifying trade-offs and reconciling their impacts.
If you are looking to address intergenerational fairness, boost growth, or achieve net zero, you need to have policy coherence. Or at the very least, not have policies in place that are actively harming other objectives.
Yet if this is the goal, the current federal government seems to be making policy moves in the trade and immigration spaces that are incoherent and may have some major ramifications downstream. And this is happening without an open conversation about the trade-offs and what we want to see happen.
Rising Protectionism
The first is Canada’s decision to copy the USA and impose 100% tariffs on Chinese-made EVs and a 25% tariff on Chinese steel and aluminum. This was announced alongside a 30-day consultation “concerning other sectors critical to Canada’s future prosperity, including batteries and battery parts, semiconductors, solar products, and critical minerals”.
Leaving aside whether banning EV imports from the world’s largest producer of EVs is in line with net zero ambitions, 30 days seems inadequate to have meaningful consultations with stakeholders on sectors critical to Canadian prosperity. Supply chains are complex beasts and Canada’s place in them is nuanced.
In the absence of an actual economic security strategy, it is hard for businesses and other stakeholders to be able to understand the trade-offs in balancing efficiency with matters of security and resilience.
More substantively, the tariffs are a marked shift in Canada’s trade policy with some major ramifications. Trade expert Simon Evenett wrote about these changes saying that “this retrograde step shreds Canada's multilateral credibility & foreshadows regional tariff walls”, adding that “for a nation that has strongly defended multilateral trade principles in the past, Canada's move suggests--going forward--at best selective fealty to global trade rules.” Should the US pressure Mexico into following suit then Evenett speculates that “a Fortress North America dynamic would emerge--accelerating a retreat from multilateralism to regional blocs.”
This is big. This is a major policy shift from the multilateral, rules-based approach that Canada has taken over many decades. And it has been followed by news that Canada is considering following the US lead in banning vehicle hardware and software from China. This raises many questions about the coherence of these moves. As trade law professor Wolfgang Alschner has noted, a lot of the companies with major R&D operations in China are the same ones that the government is subsidizing to build EVs and batteries in Canada. For him, “It will be messy, put mildly, to disentangle North American assembly from technology and components developed by the same companies in Europe and China and risks cutting off North America from innovation.”
There are important conversations to be had here about risks from China, the importance of protecting the domestic manufacturing base, and on the need to align with the USA. But even though “trade openness remains critical to the Canadian economy”, as Professor Patricia Goff recently argued in Policy Options, we are instead rushing to double down on the US and turning our back on decades of efforts aimed at multilateralism and trade diversification.
The Anti-Immigration Turn
The recent spate of announcements restricting immigration is a further example of policy incoherence. As has been written about extensively elsewhere, the changes to study visas and post-graduation work visas have altered the landscape of Canadian higher education without real dialogue on the trade-offs.
I want to zoom in though on changes to temporary business visas. With a massive thanks to my wife, and immigration lawyer extraordinaire, Sharmin Rahman for flagging these and explaining the details, yesterday the federal government made sweeping changes to the rules for intra-company transferees. Announced without a press conference, let alone parliamentary debate amending the underlying legislation, these changes significantly restrict the ability of businesses to bring specialized expertise into Canada.
I’ll highlight two changes. The first limits who can do an inter-company transfer in the first place. Previously, a firm had to be established in just their home country before setting up in Canada and being able to move talent here. That has now changed to require operations in at least two countries before establishing in Canada - closing off Canada as the first expansion market for businesses.
The second change restricts the role of senior staff. The changes specify that “an executive or manager does not perform tasks or functions related in the manufacturing of a product or in the delivery of a service” [emphasis from the Government of Canada]. In effect, a manager can only manage people and can have no other professional role.
These are big changes for the kind of corporate clients that Sharmin deals with day to day and they are at odds with other parts of the government’s agenda.
That is because many of those corporate clients are specialized firms that bring in expertise to assist mining projects, big clean technology projects, and major transit infrastructure projects, for example. They are the kind of firms where their staff comes with an executive-level title because they are experienced leaders who provide that expertise to guide large Canadian projects, not because they are simply managing people and budgets.
Now it may be much harder to bring that talent into Canada and that will have knock-on consequences for other priorities.
Trade-offs are hard - that’s the point
Now, none of this is easy. But we need to acknowledge that we operate in a complex system and that decisions (or a lack of decisions) have downstream consequences.
We need to be transparent about those choices and have a real dialogue about what they involve. And we’re not doing that right now.
The government is responding to US pressure on China and undermining Canada’s multilateral credentials and trade diversification efforts in the process, without a real conversation about what that means. An election was fought on free trade with the US but we aren’t anywhere close to that level of debate now.
Similarly, the government is reacting to growing xenophobic sentiments that blame immigrants for a host of socioeconomic concerns rather than the lack of government strategy and foresight, and in the process radically reshaping the higher education system and making changes that will directly impact efforts to build transit and to shift our economy to net zero. Again without a proper debate.
We need better than that.