Free Trade at the periphery.

THE PERIPHERY: It’s smart to pay attention to what’s in front of you, but have you noticed what’s happening along the periphery of your vision?

Part 2 of a 3-part series (part 1 is here).

FREE TRADE IS A BIG DEAL in southwestern Ontario. I’m visiting relatives here. Donald Trump just declared NAFTA as good as dead. Pointing to a new deal with Mexico, the American president set a deadline for Canada to come to terms. Friday. The end of the month.

And I wonder how this will all land in a prosperous region of the country dependent on a trade deal now on the ropes. Am I looking at the end of an era?

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Church basement in Bookton community 

First thing I noticed: Trekking through the farming community where I grew up near Tillsonburg in southern Ontario — talking to locals in church basements, at kitchen tables, in fields of ripening crops — I asked what they thought about supply management in dairy & poultry.

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Church volunteers

And another provocative question: how much is too much and what’s not enough when it comes to investment in today’s rural communities & people who look after the land (more on this in a moment)?

IMG_1952Second thing: Same week, I drove the busiest road in North America — Hwy 401 in Ontario — connecting the Canadian auto parts & supply-chain to Detroit, the epicentre of the American auto sector. Truck after truck after truck. And still more trucks travelling on Hwy 402 — Sarnia’s border crossing — enroute to the Motor City. Everywhere alongside these bustling highways, there’s hard evidence of Canada’s auto sector and how it weaves nearly perfect into America’s. It’s been this way for decades, since Ontario’s Auto Pact of the 1960s. And just like oil pipelines crossing borders in the West, it’s a no brainer to see that Canada’s economy is now fully integrated with the United States.

Why do we pretend otherwise?

I’m on the lookout for pragmatism. It’s there, but sometimes you really have to poke — hard.

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Dairy barn under construction

First: supply management. It’s leading to distorted economics.

Locals say: No one raises chickens to make money; the value of your quota creates the most wealth.

Translation: government guaranteed quota is a cash cow.

Dairy cattle barns — enormous in size — are being constructed on top of rich soil that’s perfect for high-yield market gardening (the most expensive land for agriculture in the region). The value of the supply management quota — not the pricey land underfoot — makes a fortune. And until that changes, nobody’s selling out.

Farms and farmers in the predominantly Dutch community I’m visiting are doing well. They’re rich. And entire communities have benefited from their largesse — schools, seniors homes, churches and commerce — not a bad thing.

When I asked non-dairy & poultry farmers what they saw, the number one ‘noticing’ was inflation. Supply management is causing the price of all farm land to go up, they tell me; a good thing if you are selling, not great if you’re young and looking to buy.

Is there a sense that supply management will soon disappear?  The general consensus: Can’t imagine it ever ending. Shrugs. And even with Trump’s threats, the impression here is there’s no sense of elevated risk. That’s just weird to me. Feels like entitlement. Maybe not a cartel, but there’s something here that doesn’t sit right.

IMG_1273Supply management is more than just cash flow.

In the last blog, I talked about ranchers in southern Alberta who lease land from the provincial government to graze cattle. Up close, that looked more like preserving a way-of-life than making a lot of money and tilting trade. But wandering around the prosperous ‘supply managed’ parts of southern Ontario, a place I know well, it felt very different than my recent experience in Alberta’s ranch country.

It’s my old stomping grounds, so I feel entitled to say this: Supply Management in southern Ontario is much, much more than sustaining a subsistence lifestyle, and looking after agricultural land. Many farm families here are wealthy beyond imagination. The grumbling I heard about this all being ‘too much’ resonates with me; it’s not to be written off as schadenfreude — envy and jealousy — spanking-new dairy barns complete with board rooms and fancy seating, full kitchens & residential suites (for the farm workers) feels way over-the-top.

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Baby clothing in local store

Let me put this out there: Follow the money. Canadians need to ask how far does the benefit of supply management in agricultural communities go? Who benefits? Who doesn’t? Should supply management still have a place at the table or a bargaining chip in free trade agreements?

IMG_7723Which brings me to the second noticing: the auto supply-chain Canadians have crafted with the United States since the 1960s.

I visited my 90-year-old aunt in Livonia, a large suburb and part of metro Detroit.  My first cousins run a precision tool-making machine shop my uncle fired up in the 1970s.  And for years, their biggest and only customer was Detroit’s Big Three car companies. Today, they make high-end tools for auto assembly plants all over America, Mexico, China, anywhere in the world; they had to broaden the scope of their business to survive; for instance, manufacturing down-hole tools for the energy sector. It’s uncanny timing that President Trump declared a free trade win with Mexico. And the week isn’t done yet…

Another thing I notice enroute to Detroit is local media — radio and newspapers — don’t fret about status quo in the auto pact. You would think every person in Detroit would be jumping up and down for change; there was an even keel, something I hadn’t anticipated.

My cousins’ shop floor is full of high-precision gear. The work orders comes in waves — kind of like a freelancers curse — when it’s busy, its super busy. Then blank. Somehow the business manages to retain its expertise. What they can’t manage is how their one-of-a-kind tools are immediately knocked-off by international competitors. Intellectual property used to be guarded by the companies they contracted with; the reasoning went: if you took the time to design and create what we — the auto manufacturer — needed on time and on budget, you should expect to get more business from us to restock the same tool.  No more. You do a deal — one contract — for a precision product. Don’t bank on another to follow.  Relationships are a thing of a past.

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Cousin John

I asked John, my super-bright engineering cousin and an American citizen, how he would approach free trade negotiations if he was on Team Canada. It helps that he was born in Ontario, and has an appreciation for things Canadian.

Let’s talk about China for starters, he said.  Don’t put politicians in the driver’s seat for a trade deal with China (the country is governed predominantly by engineers in Beijing ). Have Ph.D. engineers negotiate with them, not politicians with stars in their eyes.

We agree. That’s smart.

John drives a Canadian-made vehicle. He knows quality when he sees it. And Canadian quality, he says, is top of the line and America would do well to partner in more joint ventures with Canada.  About our obsessing over environmental standards: John recommends more attention placed on due diligence than on compliance.

John continues:

Create associations that auto-sector companies join; encourage members of the association to self-regulate; and demonstrate compliance to your technical peers. And don’t forget access to money when you think about free trade. if your competitor has access to cheap money, tax relief on loans, incentives, it makes for a very uneven playing field.

This brings me back to supply management…

My American cousins grumble about competing with machining companies in Ontario. They cite our healthcare benefits, the lower Canadian dollar, and government breaks to support research and ‘innovation’. But when you push for deeper answers, they prefer more collaboration with Canada; they see the benefit of creating an integrated auto sector that can compete more effectively with China; India too. That is the real goal for all of North America. Pragmatic guys.

And should you be wondering: yes, they voted for Trump.

I hope they can influence him.

 


5 thoughts on “Free Trade at the periphery.

  1. Donna your post requires several reads. It’s trade policy rich. I can testify among all of the points you make one crushing reality: the pretty, silver Buick Envision that I enjoy driving every day was actually made and assembled in China. If you glance at a Google map of Shanghai or Shinzen you will see pretty quickly that the China of the era of Pearl Buck and Mao Tse Tung is sepia shaded history. Canada and the USA need to address that. And they have our missile technology too.
    I feel uneasy.
    Time to watch some baseball.

  2. Thanks Phil. Your honesty is refreshing. On Pearl Buck & Mao Tse Tung, I read a book recently, China Mirage, that you may enjoy. There are many illusions we need to shatter right now. Warmly, Donna

    1. Thanks Chris. It’s amazing what you can see if you are looking. It’s heartening to see solutions, in the minds of people close to these real-life issues. Appreciate it if you would encourage your friends to be on the lookout too.

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