Recent events reported in local media highlight the unsustainability behind the current notion of free trade. The threatened closure of Consoltex in Alexandria and the announced consolidation of Royal Windows in Cornwall are both being blamed on cheap imports and global competition. More importantly, an article published in September reported StatsCan figures suggesting that Free Trade has not made Canadian industry more competitive; instead, it forced the closure of small plants and gave the illusion of efficiencies through economies of scale among the remaining large plants.
Let us first understand the notion of trade. It essentially means that my product must be cheap enough to absorb the costs of transportation, brokerage, and distribution to be extremely competitive in a distant market. I say extremely competitive because the selling price must be low enough to overcome the natural preference for domestic products in that distant market. Therefore, Free Trade is essentially the movement of relatively free products from a low price market into a distant high price market.
Two things make exports cheap enough for distant markets: low overhead costs and a undervalued currency.
Canadian manufacturers and farmers must compete with developing countries that have relatively poor social services, education, health and infrastructure. Therefore, the only way to compete with a barefoot peasant is to become one. I dare say that we are doing exactly that. The team supporting the Consoltex plant are so happy to be able to save the jobs by negotiating a wage decrease! The recent trend in provincial and federal governments has been to reduce public services and taxes in order to make Canada more competitive. Competitive with who, I ask? What happened to the benefits of the organized labour movement of the 20th century? And this has only started! Just look at how Chinese and India industries are gearing up to export to the world.
Secondly, exports become relatively cheap when we devalue our currency. The World Bank devalued many currencies in debt loaded countries in the 80's and 90'. Canada did it voluntarily and progressively so we did not feel the upheaval felt in those countries. Canada has enjoyed the last decade of prosperity largely thanks to our low Canadian dollar. Now this is changing and we can only expect a sharp decline in exports. The USA has also understood that they cannot compete in a world market with a strong currency.
Competitiveness is not sustainable if it relies on a devalued currency and poor social services. On the contrary, a healthy competitiveness can rely only on the human values of innovation, productivity, creativity, hard work, excellent customer service, and good product quality.
We do not need Free Trade. We need Fair Trade. Fair Trade occurs on a level playing field where populations enjoy similar social services and infrastructures, and receive a decent wage. A level playing field requires a stable or fixed exchange rate between currencies. All this was the whole point of the European Union and the Euro, to create a level playing field for the fair movement of goods, services, and people.