Canada can learn some hard lessons from Brexit as it pivots to the EU

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It’s always going to be slightly less than it sounds just because of geography.

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Could closer Canada-EU cooperation create new trade-offs with the United States?

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I think down the line, if Canada starts thinking about doing regulatory alignment deals with the European Union, that could have a massive impact. If you think about things like agriculture, if the Canadians say, “Okay, we’re going to align our agricultural rules with the European Union to make trade easier,” that will limit the ability to do deals like that with the United States.

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If you start thinking about regulatory alignment, it will have an impact because aligning with Europe means it’s harder to do stuff with the United States. So they are the areas where you get trade-offs, but I don’t think anyone’s talking about that kind of thing yet.

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Canada already has trade agreements with Europe and Indo-Pacific partners, but tariffs are only one part of market access. What are the main barriers to turning those agreements into actual trade?

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Well, it is partly market access, isn’t it? It’s regulations. Tariffs are a trivial part of the constraints on international trade. It’s non-tariff barriers. It’s differing standards, it’s differing rules, it’s the need for checks. They are the things that impose costs on international trade. That’s why the European Union’s single market is such a powerful thing because it removes those obstacles.

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In a sense, the test for Canada would be how far it wants to go in thinking about things like regulatory alignment above and beyond getting rid of tariffs and stuff like that. And there, you know, the CETA deal does a tiny amount, but not very much. And the question is whether the two sides are willing to go further.

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It might be that actually the Canada-EU thing turns out to be something that’s far more about security and defense than it is about economics. We’ll have to wait and see because in (von der Leyen’s) speech today, there was obviously very little in the way of detail.

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How does the more protectionist global environment change the value or purpose of diversification?

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Well, it makes it harder because, of course, the European Union is in the process of doing what the U.S. did under Joe Biden to try and defend itself against unfair Chinese trade practices by essentially doing European preference on a lot of procurement. That’s having massive implications for the U.K. and will have massive implications for other trading partners of the European Union.

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If there is a European preference, you know, the U.K. is engaged in a negotiation with the EU at the moment, trying to make itself count as European for these things, right? So that will be an issue for Canada as well, I would imagine.

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I think the difference between now and sort of pre-COVID is that pre-COVID it was all about trade and openness and maximizing exchange with other countries. Now it is keeping in the back of your mind the need for resilience, the need for greater self-sufficiency, the desire not to be too dependent upon any one partner.

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Q: The UK has found that trade policy is inseparable from larger geopolitical choices involving China, security, technology and the United States. Is Canada facing the same trade-off, perhaps even more acutely?

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Well, I’m not sure (the U.K.) has realized that. I mean, in a sense, we still want to have our cake and eat it with the Chinese, don’t we? We want to, while acknowledging that they’re a threat and seeing intellectual IP theft and spying and all that going on, we still want to maintain our trading relationship with China as if none of that were going on.

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I mean, that’s just a really difficult choice for European countries that we haven’t really addressed yet.

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Everyone faces the same trade-offs because we’re in a world of increasing mercantilism, where the biggest economies are also countries that are far less reliable than they used to be. China’s more of a threat now than it used to be or is seen as such. The United States is Trump’s United States. So yeah, it’s all more complicated now. The trade-offs are far more complicated, and life is just not as simple as it used to be.