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Protectionism and the Canadian Steel Industry

September 1, 1984 -

Discussions are currently underway in the United States with regard to protecting the U.S. steel industry against lower-priced imports. Imports, mostly from such countries as Brazil, South Korea and Spain, have captured 26% of the domestic U.S. market. Although they constitute only 3% of the American market, steel exports to the U.S. account for 20% of Canadian production. The contemplated imposition of steel import quotas would therefore seriously hurt Canada. The irony is that Canada is a fair trader, unlike other importers who try to unload their steel on the U.S. market for prices well below the American price.

A further irony in this episode was explained by Ronald Anderson in his Globe & Mail column on August 29, 1984. Anderson blamed government intervention in steel pricing in the early 1960s (remember John F. Kennedy?) for causing U.S. industry to limit investment in its steel plants and equipment. The U.S. steel industry did not keep up with new technology, and so it is uncompetitive in the 1980s. While 86% of the crude steel output in Japan is produced via the modern and cost-efficient continuous casting process, only 31% is produced via that process in the U.S. Now the government proposes to solve its troubles through import quotas. Anderson concluded: "Technological leadership evidently is the critical factor for steelmakers; it is success in this area, rather than protection, that will shape the industry's future."

Protectionism: Who Benefits?

October 1, 1985 -

Protectionism is much in the news today. The Macdonald Commission report on Canada's economy favours free trade with the United States. This recommendation has provoked opposition from unions and others afraid that free trade will undermine Canada's independence. Meanwhile, the federal government is scheduled to conduct wide-ranging discussions with the U.S. about free trade between the two countries.

To place this topic of trade into perspective, recall that Canada does not even have free trade within its own borders. A dramatic illustration of our internal protectionism occurred last month in Aylmer, Quebec. The Quebec government discovered that bricks used in a new sidewalk there had been made in Ontario, so the sidewalk was torn up, more expensive Quebec-made bricks were laid and a contractor is now stuck with 17,000 square feet of Ontario bricks. And there are more examples of such balkanization in the Canadian market. As Carol Goar concluded in her Toronto Star column of September 24, 1985, "It is one thing to talk about becoming a competitive, forward-looking, highly skilled trading nation. It's quite another thing to behave like one. Ripping up sidewalks and indulging in interprovincial beer wars is not a great way to start."

Richard Gwyn discusses trade with the United States in his new book, The 49th Paradox. With, some hesitation, he comes down on the side of free trade. Writes Gwyn: "In the contemporary economy of the global marketplace, industrial adjustment is inevitable sooner or later. Rejecting Canada-U.S. free trade in the hope of avoiding industrial adjustment is the economic equivalent of closing the back door of a barn while the front one remains wide open."

The Third World

The free traders invariably bolster their position by stressing that protectionist trade policies raise the cost of consumer goods. Take, for example, the current debate about shoe quotas. Not only is there a 23% tariff on shoes from foreign countries, but imports are also subject to quotas (imports make up about 60% of the Canadian market). Canadian shoe manufacturers warn that 6,000 of the industry's 15,000 jobs will be endangered if quotas, which expire at the end of November, are not renewed. In addition to the argument that free trade lowers costs, there is at least one more weighty argument in favour of open markets: Third World countries desperately need the money generated by trade, especially in view of their overwhelming debt burden.

David Crane, political and economic affairs writer for the Toronto Star, pointed out in a recent article that our protectionist policies will do immense harm to struggling countries such as Brazil, Argentina, Mexico, and South Korea. Failure to open world markets to all countries will further aggravate the international banking problem and will lead to more political and social unrest. Canadian and other Western markets will also be adversely affected because their export possibilities will be restricted. According to Crane, it's hard to think of a more dangerous route than protectionism in today's fragile world economy. He concludes: "Instead, Canada's best interests are served by resisting protectionist pressures, putting its full weight behind new multilateral trade talks (rather than the narrow Fortress America of Canada-U.S. trade talks), and pushing our own economic and industrial polices at home to develop new industries and jobs to replace those now challenged by the expanding manufacturing industries of the developing