With this trade war, Canada faces its Singapore moment

Eric Miller is president of Rideau Potomac Strategy Group and a fellow at the Canadian Global Affairs Institute

In moments of great change, countries are forced to rethink all their assumptions. Canada’s recent decision to walk away from a proposed trade agreement with the United States may well be one such moment.

For decades, some three-quarters of Canada’s exports have gone to the United States. While bilateral trade relations have often been conflictual, Canada has typically negotiated with U.S. administrations that saw expanded trade as mutually beneficial. Not so with the Trump administration.

Canada’s decision to walk away stemmed mainly from the modest tariff reductions put on the table by U.S. negotiators and restrictions on our country’s policy autonomy raised late in the talks.

It is, of course, perfectly possible that Canada and the United States find their way back to the negotiating table and reach a deal. It is also possible that the two countries plus Mexico find a pathway to extend their trilateral trade agreement. But Canada cannot count on these outcomes.

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The old rules-based trade order in North America appears to be crumbling, creating an imperative for Canada to find new sources of economic growth. In doing so, policy-makers would be wise to look at examples of countries that have made successful shifts.

Perhaps the best such example in recent decades is Singapore.

In August, 1965, following mounting political tensions, Singapore was expelled from Malaysia and became an independent state.

While Singapore began independence with some advantages, including reasonably good institutions and a top-notch port, separation put severe strain on established cross-border linkages. Singapore found itself a commercial hub without a hinterland. It could no longer count on readily accessing Malaysia’s internal market, nor on its port handling its neighbour’s trade.

As a city-state, Singapore had none of the classic attributes of national success, such as agricultural land or natural resources. It did not even have its own water supply.

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Then-prime minister Lee Kwan Yew and his government were left with no choice but to remake Singapore at speed. They addressed regional security threats by building a citizen military. They dealt with ethnic tensions by ensuring equality in public life.

And, most famously, Singapore built itself into one of the world’s richest countries. It achieved this through a variety of strategies developed through careful analysis and experimentation.

It aggressively pursued foreign investment from multinationals and made the investor experience superb. It used government enterprises to solve specific development problems and catalyze projects.

Building on its free port heritage, Singapore kept domestic trade barriers and taxes low. Its industrial policies focused on export-oriented sectors with continuous technological upgrading. It made its port the world’s most efficient, and built the best airport on the globe.

It allowed citizens to use their retirement contributions to buy homes – driving mass ownership and spurring infrastructure development. It also built a high-quality education system, and ensured clean, efficient government.

Not everything worked and many lessons were learned along the way, but Mr. Lee’s government approached all economic matters with the understanding that the country’s survival depended on its continued success.

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Canada has advantages in land, resources and population that Singapore could only dream of. Yet, Canada today finds itself heading for a state of economic dislocation similar to what Singapore faced in the mid-1960s, and is likewise asking, “How do we survive economically without being part of a bigger economic unit?”

Canada has little control over whether the United States-Mexico-Canada Agreement survives as a mutually beneficial trade accord.

But the waning of predictable trade rules in North America does not mean that Canada faces inevitable economic decline. If it is to maintain and grow its prosperity, however, Canada will need to embrace dramatic shifts in its economic, social and foreign policies.

The point is not for Canada to copy Singapore’s specific playbook, but to learn lessons from its experience and consider how to apply them in the Canadian context. For example, Canada’s export strategy would not start with electronics manufacturing, but with getting its agriculture and energy products to market.

Prime Minister Mark Carney is already embracing elements of this approach, stating this month that “building at home and diversifying trade abroad” is plan A for Canada. The key now is to get the provinces, the business community, First Nations and the Canadian public to embrace economic transformation.

This is a harder road than the established U.S.-centric trade model, requiring significant reform and sacrifice. But, when the old path disappears, the only option is to change direction.