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Federal Impact on International Trade

In statements on successive days, Canada’s Prime Minister, Justin Trudeau, as well as Deputy Prime Minister and Minister of Finance, Chrystia Freeland, expressed their concerns over how the so-called Freedom Convoy might affect trade relations with the United States.

However, a legion of noisy truckers on a chilly month in Ottawa were only a part of the ongoing trade issues that Canada faced—and continues to face.

A country’s balance of trade is defined by its net exports (i.e. its exports minus its imports) and is influenced by any and all factors that affect international trade, including exchange rates, trade policy, foreign currency reserves, factor endowments and productivity, inflation, and demand.

One of the primary reasons that the federal government involves itself in international trade is to strengthen the competitiveness of its industry, to promote investment and trade, and to ensure fair trade takes place through the enforcement of trade laws and agreements.

International trade not only allows countries to expand their markets, but it also allows access to goods and services that might not otherwise be available domestically. This results in the market being more competitive, which, in turn, creates more competitive pricing and a less expensive product for the consumer.

Import tariffs are one of the most common ways in which a government can intervene in international trade. As well, governments can affect trade globally by creating subsidies, taxing the public and giving the money to an industry, adding taxes to foreign products in order to lift prices, and making products that are produced domestically more appealing.

However, should the government choose to stop an international trade—whether protectionist or retaliatory—there are a number of tools available in the government toolbox to create an international regulatory trade barrier—from tariffs and quotas, to subsidies, standardization, licensing, and a number of non-tariff barriers.

As pointed out by the Canadian Association for Business Economics (CABE) in their report “Global Affairs – Canada’s State of Trade 2022,” Canada’s trade with the world has faced multiple challenges over the past several years, including pandemic-induced supply chain disruptions and travel restrictions, shortages of critical components to production, as well as contending with inflation and other disruptions that were a result of Russia’s attack on Ukraine.  

As CABE notes, through all of this, Canadian exporters have been remarkably resilient, and exports have surged to record highs.

Late in 2022, the Government of Canada reported that economic activity was “slowing globally, and more sharply than expected, with inflation higher than it has been in decades.” 

Budgeting for the Future

In April of 2022, the Government of Canada released its Federal Budget, titled “Budget 2022: A Plan to Grow our Economy and Make Life More Affordable.” The budget sets the fundamental groundwork of the Federal Government’s goals for national economic development, promising continued investment in economic growth and innovation in Canada.

In the Budget’s section “Strengthening Canada’s Trade Remedy and Revenue Systems,” three key points were noted:

  • The announcement of the government’s intention to introduce amendments to the Special Import Measures Act and the Canadian International Trade Tribunal Act to strengthen Canada’s trade remedy system by better ensuring that unfairly traded goods are subject to duties, and increasing the participation of workers.
  • Proposing to provide $4.7 million over five years—starting in 2022-2023—and $1.1 million ongoing, to the Canada Border Services Agency to create a Trade Remedy Counselling Unit that will assist companies, with a focus on small and medium-sized enterprises.
  • A proposal to introduce amendments to the Customs Act to implement electronic payments and clarify importer responsibility for duties and taxes

The Budget went on to note, “The Canadian economy has staged a strong recovery from the pandemic.  Our workers and businesses have displayed remarkable resilience as the world endured multiple waves of COVID-19.  Real GDP returned to pre-pandemic levels earlier than expected.  Canada’s jobs recovery has outperformed its G7 peers, and surpassed even the most optimistic expectations. Economic scarring from the pandemic has largely been avoided.”

A month after the release of the Budget, the Bennett Jones International Trade Group released its insight into “Canada’s Federal Budget 2022 and Canadian Sanctions Implications.”

Since the amendments proposed in the 2022 Budget Implementation Act have “the potential to affect the operations of Canadian businesses that trade with, provide services to, or engage in financial transactions with organizations and individuals associated with sanctioned persons, including those who have interests in property that is also owned, held, or controlled—directly or indirectly—by entities and individuals subject to sanctions,” Bennett Jones advises that businesses should evaluate their current exposure in sanctioned regions and closely monitor developments.

What lies ahead for the rest of 2023?  No one can possibly know for sure, but Canada and its international partners are committed to supporting global trade and investment by keeping the supply and trade links open.

As stated in the 2022 Canadian Budget: “A strong and accessible trade remedy system protects Canadian workers and businesses, while effective revenue systems ensure that trade flows are effectively enforced.”

Peter Campbell | Contributing Writer

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