January 2006

Elections in Canada: Good News? Bad News?

After a hotly contested race, Canadians went the polls on January 23, 2006. While the election itself has elicited little more than a yawn in the United States, a great deal is at stake. Canada is America’s largest trading partner, with annual two-way trade of over $400 billion. It is also this country's largest supplier of foreign energy. And, post-9/11 considerations make cooperation on our northern border central to our common security. Notwithstanding shared interests, interlocked economies, and a common border, Washington and Ottawa have been at daggers drawn in recent months. Will a new government up north bring improvement or more of the same? Who is at fault? What price will the American people pay for further deterioration in U.S.-Canada relations? At a January 24 AEI panel discussion, experts examined the Canadian election results.

Darrell Bricker
Ipsos-Reid Corporation

The elections in Canada represent a change, but not much of a change; since Stephen Harper won with a very narrow minority (124 of 308 seats), it should be considered a “government in training wheels” because Harper will need a coalition in order to govern. But instead of having a “government in waiting” of the Liberal Party, the political situation is even more disruptive because Prime Minister Paul Martin declined to run for office again after the election results.

It is incorrect to think that Harper’s election will necessarily mean a renewed relationship between the United States and Canada. The neighbors have fundamental disagreements relating to trade that have nothing to do with ideology or partisanship. Furthermore, Harper might have to work with the anti-American constituency to gain a majority. Canadians do not dislike a close relationship with the United States, but they are frustrated with the current administration. As Harper puts together his cabinet, he might try to take out the heat of the relationship, but the substance of the disagreements probably will not change dramatically.

David Frum
AEI

The Canadian elections represent another step down in the long, slow decline of the Liberal Party in Canada. The party has been the most successful institution in both the democratic and the undemocratic world, but the franchise it once enjoyed has been diminishing since 1980. The results in Quebec demonstrate that the Conservative Party would take over should the Bloc Quebecois fall; the Liberal Party has been reduced to three major central cities. Furthermore, the party is suffering from internal conflict as it sees a movement towards emerging liberal parties.

Canadians are largely supportive of free-market policies, and they realize that they must work with the United States so anti-Americanism is doomed to fail. The softwood lumber dispute, however, is an important point of contention that the United States should not underestimate: it is not simply a trade issue, but a symbol of good faith. Canada is the weaker partner in NAFTA and entered the trade agreement with the promise of more protection for its lumber industry. While Harper is friendly, he might be skeptical on this issue; perhaps this is a moment for the United States to step up and help relations through admitting it was wrong.

The negative tone of the past four years is an anomaly; neighborly relations have a history of being positive and strong. The past four years are not only a result of tensions over trade, but through political exploitation by Prime Ministers Chretien and Martin.

Phillip L. Swagel
AEI

The Canadian economy has grown during the past two years, closely mimicking increases in commodity price--a fact which is to be expected given that Canada is a natural resource-driven economy. Growth also generally follows that of the United States, although per-capita income and productivity are lower. Over the long term, Canadian domestic problems mimic those of the United States, namely rising health care costs. Although spending is currently less, it is growing at the same rate and therefore threatens fiscal stability.

Canada finds itself somewhere between the United States and Europe in terms of unemployment rates, tax rates, labor market regulations, and economic performance. The social safety net is greater than that of the United States (but less than that of Europe), which seems to effect these indicators. The provincial transfer system has caused the state of provinces to converge, but it has lessened the productivity of the weaker provinces (specifically the Maritimes) which threatens to retard future economic growth.

Harper has an opportunity to restart talks on softwood lumber, although the likely cost of a resolution--$4 billion--would be costly politically. The other issue is that of drug imports and price controls on the part of Canada, which can be equated with stealing intellectual property. If the United States gave in to political pressures on its end and allowed drug reimportation, this would ultimately hurt Canada because drug companies would limit trade. The two countries should work together to foster a positive outcome to the WTO Doha Round of trade negotiations.

AEI research assistant Megan Davy prepared this summary.