Options for Canada-US trade relations: Hugh Holland  | Commentary 

By Hugh Holland

Donald Trump says Canada is ripping off the US to the tune of $100 billion dollars per year. What are Canada’s best current options to balance trade with the USA? Before constraining ourselves too much in this David and Goliath relationship, let’s look at some history, the most likely future, and finally, some trade options. 

Historical review

Canada has been a good US ally, neighbour, and trading partner for over 100 years. Canada entered both WW1 and WW2 ahead of the US, and our contribution to both was much more than the current 2% NATO guideline. 

Following 1945, Europe and Asia had been decimated by WW2, and North America had no competition in post-war production of consumer goods, including vehicles. But by 1960, Europe and Asia came roaring back into the competition.  

In 1965, instead of building the same popular cars and trucks on both sides of the border, PM Lester Pearson proposed a US-Canada Auto Trade agreement to improve manufacturing efficiency by allowing both countries to specialize in specific vehicles within a framework of balanced trade in vehicles and parts.  GM built three new plants in Canada to create the capacity for balanced trade. 

In 1979, Suncor started large-scale commercial oil production in Alberta’s oil sands.   

By 1986, Canada’s oil industry was exporting $22.7 billion per year. Our fully competitive auto industry, as measured by JD Powers international productivity and quality ratings, was exporting $38.5 billion of product with 152,000 employees but was 92% US-controlled. GM Canada had 15 plants and 30,000 employees by then.   

But trade agreements can be double-edged swords. The 1994 North American Free Trade Agreement (NAFTA) between Canada-US-Mexico required economy-wide balanced trade. 

By 2018, Canada’s oil exports reached $130 billion per year as the US sought to be less dependent on Middle Eastern oil.  So, our largely US-owned auto industry was effectively capped at $60 billion per year in order to make room for more oil exports. GM alone went from 15 plants and 30,000 employees in 1986 to 5 plants and 8,000 employees in 2018. GM’s Oshawa car plants were shut down after 111 years of producing cars in Oshawa. In effect, our first and second biggest industries traded places as Canada’s auto industry was sacrificed to balance trade while improving US oil security. Oil is by far our biggest current export to the US.  

Canada’s oil exports displaced our auto exports as the US sought to improve oil security.  

Regardless of Trump’s reckless claims, most of the world sees that a transition to clean energy is inevitable and will usher in a host of new opportunities that are more universally available. But will it happen before we wreck our liveable climate and before we run out of oil reserves? 

What would be the best way for Canada to manage the inevitable transition to clean energy over the next 20 years? The easiest and cheapest path is for Canada (like China) to first make big reductions in energy demand that enable big reductions in energy production. The key steps are:

• Replace gasoline-powered light-duty vehicles and equipment with electric-powered vehicles at 5% per year. Clean EVs require 60% less energy than internal combustion engines. 
• Replace diesel-powered heavy-duty and long-haul vehicles and equipment with hydrogen-powered ones at 5% per year. Clean hydrogen fuel cells require 10% less energy. 
• Replace gas combustion heaters for heating buildings with cold climate heat pumps at 5% per year.  Clean cold-climate heat pumps require 60% less energy than gas combustion heaters.
• Use the proceeds of the carbon tax to provide rebates on new vehicles and equipment.
• Stop large expenditures on questionable carbon capture and storage. Carbon emissions will be reduced automatically as the above replacements are made. 
• To replace dwindling oil and gas production, establish new industries (with a future) in Alberta and Saskatchewan for manufacturing various sized heat pumps and hydrogen generators. 
• To minimize distribution costs, each province and territory should use their reduced provincial and municipal energy costs toward producing their own reduced amounts of electricity and hydrogen using wind, solar, geothermal, or Small Modular Reactors according to local conditions. Geothermal and SMRs double efficiency by co-generating electricity and heat.  
• To ensure trouble-free implementation, infrastructure to supply and distribute the new electricity and hydrogen requirements should be installed two years in advance of their application. 

Finally, let’s look at recent trade data to see what options might best fit with a 20-year plan. 

Canada’s 2023 trade deficit = Exports of $550.8 B – Imports of 407.9 B = $142.9 B US 

Option 1 – Import More – Get credit for importing long-delivery military equipment and emerging technologies such as fuel cells for hydrogen-powered heavy-duty vehicles and net-zero aviation fuels.

Option 2 – Export Less – Move $100 million plus any additional oil exports outside the United States–Mexico–Canada Agreement (USMCA). Maintaining or increasing oil exports to the US inside the USMCA would mean exporting less of everything else. That would leave Canada in a very bad position as the inevitable energy transition unfolds. It would be very hard to recoup what we sacrificed for the sake of temporary oil exports.  

Option 3 – Terminate the US trade agreement. Our abundant natural resources, skills, lower dollar, and reputation for reliability will always be valued in Europe, Asia, and the US.   

Hugh Holland

Hugh Holland is a retired engineering and manufacturing executive living in Huntsville, Ontario.

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