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Quality over Quantity – How Commonwealth Trade is globalisation’s path forward

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Most of what you will see written about trade among Commonwealth member states stresses the advantages, which are numerous – affinities that lower the cost of doing business by up to 19 percent compared to non-member economies. That matters, and could be sufficient in and of itself, but there is far more to it, and potential consequences for nations beyond its already significant roster.

Globalisation is, at its core, about relationships between nations and economies. When relationships undergo stress and strain, it is helpful to think about what those relationships – those partnerships – really do. In the case of the global economy, it applies as well.

What is the secret to a long lasting partnership – whether it be in a business venture, accommodations between roommates, or in a marriage? There are likely to be as many answers as there are people you ask, but chances are a common theme will emerge – that of some degree of compatibility. Compatibility, in all these cases, hinges on a shared appreciation of the rules, of rights and responsibilities.

For business partners, ventures need to have the tacit agreement of all concerned regarding who does what, and how decisions are made. That is usually a function of who invested the most money, knowledge, or ‘sweat equity.’ Roommates need to work out the minutiae of domestic life, such as who takes out the garbage, scrubs the bathroom, or not eating food in the refrigerator marked with someone else’s name. In a marriage, matters of money, career, how to raise children – or whether to have them in the first place – all factor into the long term viability of the relationship.

In each of these examples, we care a great deal about compatibility. In business, we make formal contracts and incorporate ventures. In rooming agreements, we draw up rules and assiduously argue for – and over – them when someone is not seen as pulling their own weight. In terms of marriage, a divorce rate approaching fifty percent is a testament to what happens when partners find there are ‘irreconcilable differences.’

We try to avoid failed partnerships. We hire business consultants, lawyers and accountants. We interview prospective roommates and ask for first and last month’s rent up front. In the case of finding a prospective life partner, we may sign on to some online dating site and answer an elaborate set of questions designed to tease out commonalities. According to Statista, the world is expected to spend US$1.38 billion in 2018 to have algorithms from online dating services to pick Miss (or Mister) Right.[i]  It is hard to believe that we would spend that kind of money on something that isn’t important to us.

And yet, if one looked at how we pursue partnerships between countries, you would think that none of this mattered at all. Like the suitor who only has eyes for a pleasing physical form and a large bank account, we seek out deals with partners based primarily on their GDP and the size of their consumer base. And, like the aforementioned analogy, we later learn that the affections are not reciprocated, the money is tied up in a pre-nuptial agreement, and there is precious little to sustain even the most superficial conversation. We choose quantity over quality, and are somehow surprised by the result.

Not only are we surprised, we react with a mixture of denial and deflection – not unlike what we would do when a marriage of convenience has run its course.

At the moment, many elites seemed seized by a feeling of ennui, openly questioning the future of globalization and international trade. A veritable Greek Chorus opines over Brexit, NAFTA renegotiations, and the potential of a looming trade war. The blame, we are told by the punditocracy, lies in populism and the rejection of enlightened western liberalism. The truth is that if those commentators truly wish to find those who are inevitably to blame for the current state of affairs, they need only stand in front of a mirror and gaze forward. They believed that the differences in how countries treat one another could be discounted, that the benefits accrued to some justified the losses suffered by others, and that partners could – or would – change, becoming more collaborative, more compatible if only they had the right influences. Having failed, they now construct a narrative where it is the ignorance and ingratitude of those dispossessed and disadvantaged by the global economy who are at fault, and not those whose shoddy effort and flawed premise created the malaise in the first place.

It is in times like these, we must defend truths – that globalisation and free trade are, at their basic definition, still forces for good, and remain the best means of elevating whole populations from poverty, inspiring innovation, and advancing the human condition. But our practical application of ‘globalization’ and ‘free trade’ has been – and continues to be – flawed.

‘Marriage’ can describe a happy couple that has celebrated fifty years of joy and heartache, raised a family and become true soulmates. It also encompasses two people waking up after a night of drinking in a Las Vegas casino, discovering to their horror that they got hitched by an Elvis impersonator, starting to scope out how to get a quick annulment. Like marriage, globalisation describes the existence of a relationship – not whether it’s healthy or dysfunctional in practice.

In terms of ‘free trade’, we must also admit that true ‘free’ trade has not actually been achieved. In spates of neologistic flourish that would make Wittgenstein weep, we find novel ways to describe trade distorting rules. The United States and the European Union, for example, may find fault with Canada’s system of supply management of dairy production, but the former pays out roughly US$25 billion a year in agricultural subsidies and supports,[ii] while the latter funds a ‘Common Agricultural Policy’ that consumes fully 38 percent of its yearly budget.[iii] A rose by any other name.

Like their matrimonial counterpart, trade relationships work best when they approach a state that is fair and equitable. Not perfection, but as close as one can get under the circumstances. They need to have mutually recognized – and adhered to – concepts of what is both legal and right. These are not mere philosophical constructs. They exist, and they matter in very tangible ways.

Consider the case of the United States in its dealings with Canada and China on trade. According to the Office of the US Trade Representative, the value of their two-way trade with Canada in 2015 was $662.7 billion.[iv] In that same year, the amount of two-way trade with China was $659.4 billion.[v] By traditional measures of globalisation and free trade, these relationships are seen as equally successful and beneficial to the United States. The total volumes are large, and growing larger.

On these numbers, the US ran a trade surplus with Canada totalling US11.9 billion. This means that for every dollar of trade the United States does with Canada, it gained roughly 2 cents. In a large and complex trading relationship involving hundreds of billions of dollars, it is highly unlikely that the value of imports and exports will match to the nearest penny. If it did, it would resemble as close to a perfect model of globalization as is possible. Three cents on the dollar is not perfect, but it demonstrates that each party is as willing to be a customer to the other as it is a seller.

With China, however, the US trade deficit is $336.2 billion. This means that for every dollar of trade the US does with China, it loses approximately 51 cents.

To put it another way, for every dollar the United States spends in Canada, it can expect Canada to spend US$1.02 cents on American goods and services. For every dollar the US spends in China, it can expect China to spend 49 cents on American products and know how.

Surpluses equal a greater gain from the relationship than your partner derives. A deficit means that they profit more from the relationship than you. Again, it is rare to find any trading relationship between countries where the numbers match exactly. But large surpluses and/or deficits are a sign of an unequal relationship. If they are sufficiently large, and have remained so over a sustained period of time, they are indicative of even larger problems. Those numbers are akin to enzyme readings in a blood test. If a person’s blood glucose or iron levels were either too low or too high for a prolonged period, it would necessitate one’s doctor intervening with some form of treatment or therapy.

In the body politic, long term structural deficits equal high and sustained unemployment in specific sectors of the economy. Unlike trade lawyers and financiers, who earn their income on the commissioned value of the entire trade relationship, many of these workers only earn their keep when their employer is creating and selling.

Of course, critics will argue that the comparison between the two trading relationships is not fair, and that there are several factors that influence numbers. They will point to the fact, for example, that China does not have geographical proximity to the United States, and that it is still a developing nation with over one billion people, making it a low wage producer. All of these things are true.

They are also true of India – located in Asia, also a developing nation growing rapidly, with over a billion people and low wages. For the same time period, two way trade between the United States and India was valued at US$66.24 billion, with the US running a deficit of $23.34 billion.[vi] That means that for every dollar of trade with India, the US loses 35 cents – significantly less than the losses from US-China trade.

In terms of the comparison between China and India vis-à-vis the United States, there are only three easily discernable differences between the countries. Unlike China, India is a democracy in the Westminster tradition, its population is largely fluent in the English language, and its laws are based primarily on the English Common Law. The fact that each of those three attributes apply equally to Canada cannot be seen as merely a coincidence.

The US trade relationship with the European Union in goods, over the same time period (2015), also yields an interesting pattern:

  • France – a deficit of US$17.69 billion on US$77.8 billion (US$0.23 per dollar)[vii]
  • Germany – a deficit of US$74.85 billion on US$174.8 billion (US$0.43 per dollar)[viii]
  • Italy – a deficit of US$27.95 billion on US$60.37 billion (US$0.46 per dollar)[ix]
  • UK – a deficit of US$1.89 billion on US$114.08 billion (US$0.02 per dollar)[x]

Each of the 4 EU jurisdictions is a major industrialized economy, a G7 member, with a mature industrial and financial services sector. All have advance systems of education, social programs and infrastructure. Notwithstanding the ebbs and flows of the 2008 financial crisis, they have comparable bases to work from.

The United Kingdom does nearly twice as much two-way trade with the United States as does Italy, and yet has 1/20th of the surplus against it. In fact, the discrepancy in the US-UK trade relationship equals that of the Canada-US relationship in reverse.

The United States is not a Commonwealth country, but it is an Anglosphere nation. As such, it enjoys almost all of the attributes of a Commonwealth state – language, English common law, long-standing democratic institutions, and long established patterns of cooperation in trade, development and civil society. The only difference is the absence of the Westminster model of legislature, although the American model does incorporate some similar practices and features.

In short, commonalities can – and do – make a difference.

For further proof. one need only consider the numbers for the United States in two way trade vis-a-vis the CANZUK nations (Canada, Australia, New Zealand, United Kingdom) for 2015:

  • Canada – a surplus of US$11.9 billion on US$662.7 billion (profit of US$0.02 per dollar)[xi]
  • Australia – a deficit of US$74.85 billion on US$174.8 billion (profit of US$0.49 per dollar)[xii]
  • New Zealand – a deficit of US$27.95 billion on US$60.37 billion (profit of US$0.01 per dollar)[xiii]
  • UK – a deficit of US$1.89 billion on US$114.08 billion (loss of US$0.02 per dollar)[xiv]
  • CANZUK total – a surplus of US$41.99 billion on US$851.08 billion (profit of US$0.05 per dollar)

America’s dealings with an agglomeration of nations that most resemble them on virtually every socioeconomic, cultural and political measure produces 5 cents of surplus on every dollar of trade in a volume approaching US$1 trillion – almost a quarter-billion dollars more than its total two-way trade with China.

Of course, to use a pure Commonwealth example, we can go with Canada’s 2-way trade with its CANZUK partners:

  • Australia (Merchandise – 2015; Services – 2014) – a surplus of C$0.83 billion on US$6.2 billion (profit of C$0.13 per dollar)[xv]
  • New Zealand (Merchandise, Services – 2017) – a deficit of C$0.21 billion on C$1.20 billion (loss of C$0.17 per dollar)[xvi]
  • UK (Merchandise – 2016; Services – 2015) – a surplus of C$8.0 billion on C$39.3 billion (profit of C$0.20 per dollar)[xvii]

Even the worst case scenario for Canada among the three other CANZUK nations is better than the best case scenario for the US among the EU states who will remain post-Brexit.

Making the previous China versus India comparison in the Canadian context, we also get the following:

  • China (Merchandise – 2015; Services – 2014) – a deficit of C$45.3 billion on US$90.5 billion (loss of C$0.50 per dollar)[xviii]
  • India (Merchandise – 2016; Services – 2015) – a deficit of C$0.63 billion on US$10.2 billion (loss of C$0.06 per dollar)[xix]

Each one of us is raised in an environment that informs our attitudes of justice versus injustice, fairness versus unfairness. Governments put forth the collective expression of those values. They internalize them. They are guided by them.

A negotiation between two or more parties that do not hold the same attitudes, or are not guided by the same internal values, can still succeed. The result, however, will reflect the lowest common denominator between them. Even then, you are still left with problems of interpretation, such as the continual disagreement between China and the United States as to whether the value of the renminbi is being manipulated, and whether it is even an issue to begin with. In dealing with partners who view issues and values differently, not only may you be forced to argue that a practice is wrong, you may also be forced to explain from a philosophical point of view why it is even considered wrong in the first place!

A shared language means little ambiguity in how issues are explained. Shared legal traditions mean that both parties have a mutual appreciation of right and wrong, legal and illegal, fair and unfair. Shared political traditions mean that all parties understand each other’s political realities, and that those realities are more often than not, very similar – if not identical – to their own. The word ‘fair’ can be employed by all parties liberally and frequently, rather than devolving into some philosophical monologue about how to define what the term ‘fair’ even means.

Among Commonwealth members – and the broader Anglosphere – there is far less ambiguity. They are understood both in the literal and figurative sense, and those understandings are better aligned than one would find among other groupings. It is the difference between knowing the price of something, and knowing its value.

Between 1856 and 1866, a limited trade agreement did exist between the colonies of British North America and the United States. In both that case, as well as that of Canadian Prime Minister Sir Wilfrid Laurier’s later proposal of 1911, neither had been referred to as ‘free trade’ agreements, but rather as ‘reciprocity’ treaties. The Oxford Dictionary defines ‘reciprocity’ as follows:

“The practice of exchanging things with others for mutual benefit, especially privileges granted by one country or organization to another:”[xx]

Without compatibility, there is no shared sense of fairness and equity. Without that shared sense, there can be no reciprocity. Without reciprocity, the internal contradictions of the global trading system will continue to grow. We will continue to stress quantity over quality, chasing partners based on superficial measures of GDP and population, regardless of whether or not those partnerships are mutually beneficial. The economic dislocations will continue, as will the ascent of protectionist sentiment. At some point, if left ignored or neglected, globalization will truly be in peril.

A robust Commonwealth trade network has the potential to encourage trade that is not only freer, but reciprocal – and sustainable – as well. 53 nations comprising one-third of humanity and roughly a quarter of global GDP would not be trivial. It could become the nucleus of more than just a rules-based system of trade.

It could be the nucleus of a values-based one as well.

Please do purchase the author’s book on the subject: The Case for Commonwealth Free Trade: Options for a New Globalization, available on Amazon.

Endnotes:

[i] Online Dating,’ Statista, accessed 2018 June 10, https://www.statista.com/outlook/372/100/online-dating/worldwide#

[ii] What are US Farm Subsidies?” ThoughtCo, accessed 2018 June 10, https://www.thoughtco.com/us-farm-subsidies-3325162

[iii] “The common agricultural policy at a glance,” European Commission, accessed 2018 June 10, https://ec.europa.eu/info/food-farming-fisheries/key-policies/common-agricultural-policy/cap-glance_en

[iv] US – Canada Trade Facts,” Office of the United States Trade Representative, accessed 2017 December 22  https://ustr.gov/countries-regions/americas/canada

[v] US – China Trade Facts,” Office of the United States Trade Representative, accessed 2017 December 23  https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china

[vi] https://www.census.gov/foreign-trade/balance/c5330.html#2015

[vii] Trade in Goods with France,” US International Trade Data – US Census Bureau https://www.census.gov/foreign-trade/balance/c4279.html, accessed 2017 November 13

[viii] Trade in Goods with Germany,” US International Trade Data – US Census Bureau,  https://www.census.gov/foreign-trade/balance/c4280.html, accessed 2017 November 13

[ix] Trade in Goods with Italy,” US International Trade Data – US Census Bureau https://www.census.gov/foreign-trade/balance/c4759.html, accessed 2017 November 13

[x] Trade in Goods with United Kingdom,US International Trade Data – US Census Bureau, https://www.census.gov/foreign-trade/balance/c4120.html, accessed 2017 November 13

[xi] US – Canada Trade Facts,” Office of the US Trade Representative, https://ustr.gov/countries-regions/americas/canada, accessed 2017 November 12

[xii] Australia,” Office of the US Trade Representative, https://ustr.gov/countries-regions/southeast-asia-pacific/australia, accessed 2017 November 12

[xiii] “New Zealand,” Office of the US Trade Representative https://ustr.gov/countries-regions/southeast-asia-pacific/new-zealand, accessed 2017 November 12

[xiv] “Trade in Goods with United Kingdom,US International Trade Data – US Census Bureau, https://www.census.gov/foreign-trade/balance/c4120.html, accessed 2017 November 13

[xv] Lambert-Racine, M., “Canadian Trade and Investment Activity: Canada–Australia,” in Trade and Investment Series – 2015, Library of Parliament Research Publications, Government of Canada, 2016 September 19 https://lop.parl.ca/Content/LOP/ResearchPublications/2016-65-e.html

[xvi] Factsheet: New Zealand,” High Commission of Canada in New Zealand, Government of Canada, accessed 2018 June 20 http://www.canadainternational.gc.ca/new_zealand-nouvelle_zelande/bilateral_relations_bilaterales/fs-new_zealand-nouvelle_zelande-fd.aspx?lang=eng

[xvii] Gowans, D., “Canadian Trade and Investment Activity: Canada–United Kingdom,” in Trade and Investment Series – 2016, Library of Parliament Research Publications, Government of Canada, 2017 September 18 https://lop.parl.ca/Content/LOP/ResearchPublications/2017-588-e.html

[xviii] Lambert-Racine, M., “Canadian Trade and Investment Activity: Canada–China,” in Trade and Investment Series – 2015, Library of Parliament Research Publications, Government of Canada, 2016 September 19 https://lop.parl.ca/Content/LOP/ResearchPublications/2016-68-e.html

[xix] Gowans, D., “Canadian Trade and Investment Activity: Canada–India,” in Trade and Investment Series – 2016, Library of Parliament Research Publications, Government of Canada, 2017 September 18 https://lop.parl.ca/Content/LOP/ResearchPublications/2017-583-e.html

[xx] “Reciprocity: Definition,” Oxford Living Dictionary – English, https://en.oxforddictionaries.com/definition/reciprocity

About Brent Cameron

Profile photo of Brent Cameron
A writer and commentator on Commonwealth trade issues, Brent Cameron is the author of 'The Case for Commonwealth Free Trade' (2004, 2018) and numerous essays and articles. He is also a member of the Advisory Board of Commonwealth Exchange, a London, UK-based research group. Cameron worked as Telecommunications Coordinator for the Federal Ministry of Labour in Ottawa, Canada before joining SES Canada Research (now Nanos Research) as a Research Associate. He also worked as an assistant to former Ontario MPP Harry Danford, Member for Hastings-Peterborough and Parliamentary Assistant to Ontario's Minister of Agriculture and Rural Affairs. Cameron was a member of the Advance Team for Prime Minister Brian Mulroney during the 1988 Canadian federal general election. During the 2007 Ontario Referendum on Electoral Reform, he acted as Coordinator for the 'No MMP' campaign for eastern Ontario (excluding Ottawa). Cameron has also served as a member and contributing columnist on the Community Editorial Board of the Kingston (ON) Whig-Standard newspaper. He holds an honours degree in politics from Queen's University and a Certificate in Municipal Administration from St. Lawrence College (Kingston, ON). In 2014, Brent Cameron was elected to the municipal council for the Township of Central Frontenac, in southeastern Ontario, Canada, and serving as Deputy Mayor in 2017.

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