Bruce Wilkinson's paper virtually assumes away a fundamental reality: Trade policy, particularly with respect to the United States, is a significant variable for decision-making in the Canadian business sector. In making a planning decision, a rational Canadian-based firm must work with some assumption as to the trade policy environment it will face. Wilkinson's first priority is the strengthening of Canada's manufacturing sector through a variety of business and governmentinitiatives. He is calling, in effect, for a Canadian 'industrial strategy'. I support this call, but I contend that trade relations with the United States are an integral component in any effective industrial strategy for this country. The first section of Wilkinson's paper focuses on the economic benefits of trade. Although several interesting debating points are scored against certain proponents of a free-trade arrangement with the United States, the paper cites nothing to refute the classical argument that such an arrangement could produce net economic benefits to Canada. The tenor of the exposition, however, is that these economic benefits are likely to be rather limited too small, probably, to compensate for the perceived non-economic costs (loss of independence, primarily) that might also accompany bilateral free trade. Wilkinson does not draw such a conclusion directly, although I think it fair to say he implies it. I tend to agree with that implied conclusion, at least with respect to the tariff component of bilateral trade policy. My agreement will be stronger following completion in the late 1980s of the tariff cuts negotiated during the GATT Tokyo Round. By that time tariffs will have become largely a nuisance factor in general Canada-United States trade, although exceptions to that judgment will continue to be important in a few specific industries. In making his points about the economic benefits of bilateral free trade, Wilkinson uses an argument that merits specific mention. He challenges what he apparently believes is a widespread notion that average productivity would rise in Canada under free trade to the level observed in the United States. Such a notion is supported neither by theory nor by empirical observation of performance across regions within tariff-free areas. The case for tariff-free trade does not rest on an assumption that it would result in productivity parity; it is based on the proposition that overall Canadian productivity would be higher under tariff-free trade than it would be under tariff-restricted trade. Canada would have to insist on retaining an independent, flexible currency in any special bilateral trade arrangement so as to be able to adjust for differences in average unit labour costs between the two countries arising from divergences in average costs or in average productivity performances. My major criticism of Wilkinson's paper is that it omits any cohesive discussion of the increasingly pressing issue of non-tariff distortions to trade. By so doing, Wilkinson confines his paper to the narrow, and essentially academic, bilateral tariff-free trade debate. This omission, furthermore, helps perpetuate a false notion that characterizes the anlaysis of virtually every strong proponent of a Canadian industrial strategy, namely that trade policy and industrial policy can be treated essentially as separable. It seems absolutely basic to me that 'industrial strategy,' certainly as the term has come to be discussed in Canada, means the conduct of market intervention in a systematic manner. In other words, the instruments of policy for implementing an industrial strategy involve, virtually by definition, actions that
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Dec 5, 2024
Ruijie Xie 
Open Access
