Canada Must Look Beyond Our Borders To Meet This Moment

We can, and should, have a stronger, more innovative domestic economy, but we can't achieve that by ignoring our dependencies on the rest of the world.

Today, I want to examine Canada’s place in the world in more detail. We’ve seen an outpouring of calls to “Buy Canadian,” but somewhat lost in the mix is our degree of dependence on the rest of the world for ideas, goods, people, and much more. As ever, and this really could be the motto for this newsletter, things are complex, and we need to understand that complexity and reckon with the trade-offs that choices involve.

Canada Needs the World: For Ideas, For Goods, for People

Photo by Elena Mozhvilo on Unsplash

Trump’s tariffs have been avoided for 30 days, and at the cost of no further concessions than those already on the table. However, the underlying threat remains, and Canada needs to get serious in how to respond.

The excellent trade commentator

Sam Lowe

has explored the uncertainty we, and the rest of the world, face. Riffing off of Dan Davies and Stafford Beer and the heuristic “the purpose of a system is what it does”, or POSIWID, Sam argues:

Adopting a POSIWID analytical approach means that instead of focusing on the expressed intentions or desires of any large, complex system or organisation, you look at what it actually does and accept that what it does is indeed its purpose.

Given company executives and governments worldwide are looking for answers and certainty about what Trump will or will not do on trade and tariffs, I’m starting to think POSIWID is probably useful in this context, too.

Or, to put it another way, if everything Trump does and has ever done creates uncertainty, then we should all assume that creating uncertainty is indeed his ultimate objective, whether he knows it or not.

I think Sam is right on the money with this. Everything Trump does, especially on the tariff front, suggests that uncertainty is the name of the game.

I often think this to distract from other changes. While we’re all focused on tariffs, Elon Musk is undertaking what one writer for The Atlantic has characterized as “nothing short of an administrative coup.” At the same time, the National Science Foundation is reviewing billions of dollars of research grants to comply with a list of banned words, upending scientific and academic independence in the US. The scale of the assault on US institutions is astronomical.

At the same time, this uncertainty is also just down to Trump being a bully. As Andrew Gawthorpe has written in America Explained:

these tariffs were a dominance display, designed to create the illusion of power and competence. The reason that Trump pays so little heed to the underlying realities of the problems he claims to care about is that they actually don’t matter. What matters is a sequence of events in which he is seen to make threats, look tough, and be able to declare victory at the end of it.

This then leaves Canada dealing with a chaotic, bullying leader to our south, set on creating uncertainty that he is able to exploit while he and his allies also simultaneously dismantle the US government.

Strengthening at Home, Connecting Abroad

Given this, it remains essential for Canada to strengthen our economic security in relation to the US. I linked last week to Bob Fay’s five-point plan to do this, which is a reasonable starting point. However, amidst the calls to Buy Canadian and to focus on internal trade barriers and the like, one crucial thing seems lost in the mix - Canada still needs the rest of the world. Even as we look to reform our economy and turn seriously toward economic security (hopefully with a lens of building a more inclusive and innovative economy), we are still going to need to be a global, outward-looking country.

I want to highlight this dependency on 3 fronts: ideas, goods, and people.

As part of my work on a forthcoming report for the CSA Public Policy Centre, I’ve been doing some research to place Canada’s innovation economy into its global context. While commercialization is often held up as one of our big innovation challenges, even in the realm of ideas and research, Canada is often a small player. Though Canada ranks 2nd in the G7 for higher education R&D spending as a portion of GDP, when it comes to some key technologies, Canada is back of the pack.

The Australian Strategic Policy Institute’s Critical Technology Tracker examines the research outputs of countries around the world in 64 critical technologies. These fall into nine domains: AI, advanced information and communication technology, advanced materials and manufacturing, biotechnology, gene technologies and vaccines, defence, space, robotics and transportation, energy and environment, quantum, sensing, timing and navigation, and technologies related to the AUKUS defence research partnership. 

When it comes to high-quality research outputs, Canada ranks dead last among our G7 peers. We only account for more than 5% of the most highly cited papers for one technology: space launch systems.

While we do produce a lot of quality research, we’re unlikely to be the dominant player in any given technology, and that’s before we even get to those commercialization challenges. We depend on global ideas to solve Canadian challenges and to create economic opportunities here.

We also have similar dependencies regarding goods. Buying more Canadian products is great, but we’re not close to being able to supply everything we need.

This is demonstrated by our comparatively low economic complexity. According to the Harvard Growth Lab’s Economic Complexity Index, while we are the 11th richest country in the world, we rank only 41st in economic complexity, a ranking that has fallen dramatically from 23rd back in 1997. Our largest exports are in low complexity products such as unprocessed agricultural and mineral exports. As a 2022 analysis from Global Affairs Canada points out, we tend to provide raw materials and low-value-added goods to other economies - and that holds true not just to the US but to all our major trading partners, even, increasingly, China.

Any strengthening of our economic security is going to rely on us recognizing this reality. We are a global economy but not one at the cutting edge. The US is a major threat to our economic security, but any genuine attempt to strengthen our position is going to need to be based on not just a domestic strategy but an international and globally facing one.

But even if we want to really double down on the domestic side, increase our innovation potential, and grow our economic complexity, we are still dependent on the rest of the world for one more thing: people.

Any retooling of our economy would depend on massive influxes of talent to address numerous, massive skills gaps. We have a rapidly aging population, with 15% of our manufacturing workforce set to retire in the next few years. And Future Skills Centre research has highlighted how chronic skills shortages over the past 20 years have meant our economy is 1.8%, or $49 billion smaller than it would have been, and that recent skills shortages in construction, mining and utilities have reduced our GDP by almost $4 billion over the past two years.

We needed talent before, and we need it even more now in light of the threat from Trump.

Yet the federal government has set itself on a course to rapidly reduce immigration, with the new targets wiping out population growth for the next two years, actually shrinking Canada’s population. As analysis from RBC set out, this will:

• put Canadian demographics back on an ageing trend, “limiting the number of hours worked available in the economy without necessarily lowing the unemployment rate”;

• “weigh on government balance sheets as an accelerated aging population puts upward pressure on healthcare costs and pension obligations”; and

• “subtract nearly a percentage point from our growth forecast for Canada over the next three years”

That doesn't seem a coherent response to the challenges we face.

We face what is, quite possibly, an existential threat. To meet that, we can’t just turn inwards and raise the drawbridge to the rest of the world. We must look beyond our borders at the same time as we work to fix what needs fixing at home.