October 16, 2018

by on February 1, 2012
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U.S. versus Them

The stories out of the U.S. of late, those of a broke Treasury, a stymied Congress, and a waning relevance are all too tantalizingly easy for Canadians to believe. The Harper Government in particular appears to be taking some glee in the glum news. Unfortunately, it is at Canada’s peril. The Prime Minister was so quick to look to China after Obama’s innocuous, lame-duck Keystone rebuke that it smacked more of petty one-upmanship than of sound energy policy. Well positioned between two looming superpowers, Harper has framed the issue as one or the other. He has chosen to forgo securing a closer and more advantageous energy alliance with our dear friend and neighbor and instead to forge ties with an unproven, comparative flash-in-the-pan a half a world away. In the words of the Grail Knight, he chose poorly.

Reports of the death of the U.S. economy have been greatly exaggerated. Over the past few months, encouraging employment numbers, increased consumer spending and improved corporate earnings all indicate that the U.S. has more than enough fight in it to take on its malaise-inducing debt problem. More fundamentally, the U.S. is experiencing a genuine resurgence in both manufacturing and energy production. The August, 2011 report from the Boston Consulting Group, “Made in America, Again,details how and why many major U.S. manufacturers have moved their operations from China back to the U.S. The report highlights the increasingly favorable cost and productivity advantages stateside and the country’s newly flexible labor force. It predicts the trend will continue.

Similarly, U.S. energy production will increase dramatically over the next ten years as U.S. shale oil reserves, the largest in the world, come on line. The U.S. Energy Information Agency’s Annual Energy Outlook, to be published in April, predicts that U.S. crude oil production will soon reach its highest level since 1994 and that within 10 years the U.S. will be a net exporter of natural gas.

Mark Carney’s recent statements that the U.S. may never fully recover from its economic downturn misses the point. True, the U.S. will not return to the economic model that held it in good stead through the 20th century. It will, however, create a new one. Americans have always been good at recovering. They now appear to be pretty darn good at adapting.

Meanwhile, China’s growing pains will not go away. Inflation, increasing labor costs, decreasing productivity, and unsustainable social and economic policies all suggest trouble ahead for the superpower du jour. Whether China’s State Capitalism is actually working is anyone’s guess.  To the extent the U.S. is the devil we know, China is the devil we don’t know.

In the past 5 years, the Harper government has had great success in seeking out and securing new trading partners. Trade agreements with Latin America, India, Europe, and Asia have furthered the aim of disentangling Canada from U.S. influence and have helped shield Canada from the U.S.’s economic woes. But Harper’s recent forays into China, including his government’s approval of China’s state ownership of Oil Sands projects, go beyond healthy diversification. In 2010, the Harper Government wisely rejected the foreign purchase of Potash Corp. Two years later, it is a very different Harper Government.

As a key component of Canada’s national energy security, oil is special. Decisions regarding its distribution would seem to require a more careful approach than what the Harper government is exhibiting.  Harper’s all-or-nothing response to the U.S. over the Keystone delay now has Canada rushing to strike a deal where no reason to rush exists. Moreover, even if China is “legit”, Harper’s plan necessarily depends on steamrolling the Oil Sands through the sanctuaries of Coastal British Columbia. With a revitalized and reliable trade partner to the south, such a plan, destructive as it is to Canada’s other special resources, seems decidedly unnecessary.

While the Prime Minister is intent on being chummy with China, a smarter choice would be a relationship that reflects more the divide between the two countries: arms-length. Moreover, to treat Obama’s politically motivated, and therefore likely short-lived, rejection of Keystone as a straw that broke the camel’s back threatens an ever-invaluable relationship. The U.S. may not always remain our largest trading partner, and that is okay, but it will always be our best.

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