We should get used to it. Canada doesn’t matter much to the United States anymore, notwithstanding the warm reception the prime minister received at the White House during his official visit in March. Some of this is our doing. But much of it is also driven by economics and domestic politics in the U.S. As our importance to our American friends fades, we need a different kind of strategy to deal with Washington. We need one driven by a better appreciation of our own national interests, but also how a changing world is affecting the United States.
For too long, Canadians have believed we are important to the U.S. and that if we are nice to Americans, they will be nice to us. That was the rap against former prime minister Stephen Harper in the last election: that he had blown it in his dealings with the White House over his tub thumping on the Keystone Pipeline. Harper assumed that pragmatic factors would outweigh trendy sentiment. He was wrong. Canada’s new political leadership team is going to find out sooner rather than later that they are fettered by the same constraints, especially when a new president is sworn in next year.
Let’s be clear, though. It’s not that Americans are mean-spirited. They just don’t see us as that important to them and, besides, they have complex domestic and global problems more pressing than issues with their northern neighbour.
When it comes to trade and investment, Canada is not only of declining importance to the United States, but the U.S. is also increasingly our trading competitor.
What was little noticed at the end of last year was that China replaced Canada as the United States’ No. 1 trading partner in goods, accounting for 16 percent of overall U.S. trade, with the bulk of that trade being lopsided towards U.S. imports of Chinese goods ($482 billion versus $116 billion of U.S. exports.) By this measure, Canada is now No. 2, accounting for 15 percent of U.S. trade (though Canada is still No. 1 when services are added to the equation), but we sell far less to the United States than China, only $295 billion, and we are buying almost as much as we sell to the U.S. — $280 billion. And what happened with goods may happen with services as the Chinese economy undergoes its own transformation towards services and high-tech and away from export-led growth based on manufacturing.
Moreover, Mexico may soon replace us as No. 2, given its rapid economic growth, which is projected to jump between three and four percent in the coming years, while ours is flat-lined, and given Mexico’s larger population (120 million versus our 36 million). Mexico imported $236 billion in goods from the U.S. and exported $294 billion, just $1 billion shy of what we sold.
For many years, our ace-in-the-hole with the Americans was our energy exports. As U.S. oil and gas production declined in the late 1990s, American dependence on Canadian hydrocarbon exports correspondingly grew. We were the U.S.’s most important source of energy imports. Political instability in the Middle East meant Canadian oil came with a valuable security premium. That was one reason the Americans committed themselves under NAFTA (North American Free Trade Agreement) not to do anything that would interfere with the free movement of energy across our borders.
Although we are still the U.S.’s most important energy supplier, exporting roughly 3.4 million barrels per day, the net is almost a million barrels lower (2.58 million). We import refined oil products in bulk from the U.S. to meet our own needs because we lack domestic refining capacity. With development of U.S. shale oil reserves and application of deep underground reserve fracking technology, which incidentally, and perhaps ironically, is a Canadian invention, U.S. domestic production has surged to the point where only 27 percent of the petroleum consumed by the U.S. is imported from abroad, the lowest level since 1985. The U.S. is also now in the business of exporting oil and refined oil products.
By changing U.S. laws to allow for the development of oil reserves in ecologically sensitive offshore reserves and also in Alaska, Obama’s administration signalled that when it came to American interests, climate-change concerns came second to achieving energy self-sufficiency.
The same cannot be said for the way the administration treated Canada.
The U.S. president’s decision to refuse to issue a permit for the construction of the Keystone Pipeline was all about political symbolism and appeasing the climate-change lobby. But it also spoke to a deeper truth about the Canada-U.S. relationship — Canada no longer matters as much as it did to U.S. energy security needs in an era of cheap oil and alternative sources of supply. Nor, for that matter, does the health of the Canadian economy, which needed the pipeline for jobs and growth. The one area where Prime Minister Justin Trudeau appears to see eye-to-eye with President Obama is climate change, but now, because of the U.S. courts, President Barack Obama’s “aspirations” will be curtailed and we may be left clinging to unattainable Paris goals, as with the earlier Kyoto Agreement.
Despite talk about North American value chains and the integrated nature of the economies of Canada, Mexico and the U.S., the U.S. is increasingly competing with Canada. That has long been true of wood products, where we have wrestled with the Americans over stumpage fees for shakes and shingles (the current agreement is over and is now a hot topic), and U.S. labelling on our beef and pork.
But competition now extends to energy, metals and other commodities. The Americans are beating a path to Asia faster than we are. The U.S. has built LNG (liquefied natural gas) terminals on its West Coast and has already begun shipments to Asia. The torrent of U.S. shale gas exports into the global market is projected to lower the price of the heating fuel in Asia by almost five percent. Meanwhile, Canada dilly-dallies with a requirement for further public consultations that will slow what is already a glacial approvals process to build new tidewater terminals on the Pacific and the Atlantic. In innovation, we bleed more than we lead. A falling dollar will accelerate the outflow of talented researchers and entrepreneurs to the U.S.
On defence and security, we continue to play our hand badly. Although former prime minister Jean Chrétien could have given a hand to the Americans in the Iraq War, for domestic political reasons, he decided not to. The Americans accepted our decision and expressed the hope that Chrétien would not go out of his way to express his opposition publicly. But then he did just that, to their great annoyance.
In subsequent efforts to patch things up, he and his successor put more ground troops into Afghanistan and got us heavily involved in the war against the Taliban. Regardless of the merits of that decision, it was costly in terms of lives lost and the hundreds of millions of dollars of development and humanitarian assistance we threw at the Afghans. It also did not translate into the kind of influence or quid pro quo on things that mattered to us, such as easing post-9/11 border controls or working with Canada on joint infrastructure projects such as the construction of a new bridge across the Detroit River.
Today, history is repeating itself. Trudeau has stuck to his guns and made good on his electoral promise to withdraw Canada from the air bombing campaign against ISIS. The Americans have said nothing to criticize Canada publicly, though Secretary of Defense Ashton Carter made his unhappiness known by not inviting Canada’s defence minister to a meeting of anti-ISIS coalition members earlier this year. To try to keep the Americans and our other NATO allies happy, Canada announced it will double the size of our training mission to help Iraqi Kurds, while increasing humanitarian assistance to those frontline states — Lebanon and Jordan — that are struggling to cope with a massive influx of refugees fleeing the war in neighbouring Syria.
In truth, many serious global challenges, such as the crisis in Syria, have been mishandled by the U.S. and its western allies. We may well be consigned to the periphery and should be careful not to exaggerate our significance or our capacity, especially since we spend barely one percent of our GDP on defence. If, as rumoured, the government chooses the Gripen fighter from Saab or the Rafael from France instead of the F35 to replace our aging CF18s, this will not sit well in the land of Lockheed Martin, or do much for our “interoperability” with the United States Air Force. Our other NATO allies who have already signed on to buy the F35 won’t be very happy with us, either.
Whoever wins the White House in the November presidential election will not be looking out for Canada’s interests. Hillary Clinton, the Democratic front-runner, has already said she won’t reverse Obama’s decision on the Keystone pipeline. She is also opposed to the recently concluded Trans-Pacific Partnership agreement, which is all but dead because nobody — not even Republicans — supports it. Among the Republican contenders, Donald Trump would play the same kind of hardball with Canada he is promising the Mexicans. In spite of the fact that he was born in Canada, Ted Cruz is running away from his birthplace as quickly as he can and he and Trudeau would not likely see eye-to-eye on very much.
If we are to tap the emerging markets of Asia to grow the Canadian economy and reduce our trade dependence on the U.S., we must strike out on our own with new bilateral trade deals, such as the one we recently concluded with Korea.
Canada’s biggest challenge right now is to change our own expectations about our relationship with our neighbour. We need a mature relationship with the U.S. — defending our interests, instead of “making nice” should be the No. 1 priority. Getting the infrastructure to export energy beyond the one market, the U.S., where we sell at a discount, should be a singular priority.
Derek H. Burney is senior strategic adviser to Norton Rose Fulbright and was Canadian ambassador to the U.S. from 1989 to 1993. Fen Osler Hampson is a distinguished fellow and director of Global Security at the Centre for International Governance Innovation.
