Economy
With no will for political union, Canada should consider economic union with the U.S.
From the Fraser Institute
According to an announcement on Friday by White House press secretary Karoline Leavitt, President Dondald Trump will implement a 25 per cent tariff on Canada and Mexico (and a 10 per cent tariff on China) beginning Saturday, Feb. 1.
Over the last few weeks, Canadian policymakers have been rather naïve in responding to Trump’s tariffs threats. They seem not to have figured out what Trump really wants (although perhaps no one knows what he really wants). But the Canadian side has focused on retaliatory measures, lobbying to ensure certain industries are exempt, and an advertising campaign to get consumers to prefer Canadian products—a “Made in Canada” preference.
It’s also been proposed that by lowering trade barriers between provinces, the Canadian economy can offset a trade war with the United States. But this raises the question—why hasn’t this already been done if it leads to such great benefit?
It’s clear that Canadians don’t want to be part of the U.S. However, given Canada’s dependency on the U.S. economy, Canada’s lagging productivity, the inefficiency of separate currencies, and the effect of changes in the Canadian-U.S. exchange rate on prices in Canada, it’s surprising that some kind of economic union with the U.S. is not being considered or even discussed. Or at least it does not appear to be something that politicians north of the border consider.
The post-war European enterprise can serve as a model for how Canada might approach the U.S. In Europe, the Germans remain German, the French remain French and the Dutch remain Dutch. This, despite the fact that the European enterprise has gone well beyond that of economic union. The Maastricht Treaty (1992) created the European Union (EU) by combining the three European Communities—the European Atomic Energy Community, the European Coal and Steel Community and the European Economic Community—into a single entity. While it set the stage for a single currency (the Euro), the Treaty was seen as a first step toward an eventual political union. While the EU has taken large steps toward political union, the enterprise is not going as well as envisioned. The United Kingdom left the EU principally because it did not want to take orders from Brussels. The U.K. was interested in an economic union, but not political union.
The lesson for Canada is clear—we do not want political union, but should be open to economic union with the U.S. This would essentially mean two things. First, eliminating the border with respect to trade in goods and services, and free movement of investment capital. Whether this would include labour would need to be addressed, although economists would argue that, from an efficiency point of view, it should. As a blueprint, one might begin with what’s referred to in Europe as the Schengen Area, which is a group of EU countries that have eliminated all internal border controls and established common entry and exist requirements. This would require that the effective border protects both Canada and the U.S. simultaneously—the northern U.S. border moves to the Pacific, Arctic and Atlantic oceans. If a person qualifies to come to Canada, they automatically qualify to come into the U.S. and vice versa.
Second, monetary union under those circumstances makes a lot of sense. It would be simple to implement. For example, we might say that one Canadian dollar is on par with one U.S. dollar, or that it’s equal to US0.85 or 0.90. The exact value is less important as wages and other costs will adjust with increases in Canadian productivity that will then lead to increases in wages.
Finally, Trump insists that Canada commit 2 per cent of its GDP to defence. I would argue that, given a willingness to negotiate an economic union, and a commitment to increase defence spending to meet the 2 per cent target by 2030, would be sufficient to remove the Trumpian tariffs.
By agreeing to negotiate an economic union, Canada may convince the Trump administration to remove the tariffs. If an economic union were a threat to Canada’s viability, to our Dominion, then we do not deserve to be Canadian. I would venture that our national identity vis-à-vis the U.S. is strong enough to survive an economic union.
Cornelis “Kees” van Kooten
From the Canadian Taxpayers Federation
Liberal leadership front-runner Mark Carney recently announced his carbon tax plan and here are some key points.
It’s expensive for Canadians.
It’s even more expensive for farmers.
Carney announced he would immediately remove the consumer carbon tax if he became prime minister.
That sounds like good news, but it’s important to read the fine print.
Carney went on and announced that he would be “integrating a new consumer carbon credit market into the industrial pricing system.” Carney also said he would “improve and tighten” the industrial carbon tax and impose carbon tax tariffs on imports into Canada.
If that sounds like Carney isn’t getting rid of the carbon tax, that’s because he isn’t. He’s trying to hide the costs from Canadians by imposing higher carbon taxes on businesses.
What that means is that Carney’s plan would tax businesses and then businesses will pass those costs onto consumers.
That also means farmers.
Under the current carbon tax, farmers have an exemption from the carbon tax on the gas and diesel they use on their farm. The hidden industrial carbon tax is applied directly to industry. Businesses are forced to pay the carbon tax if they emit above the government’s prescribed limit.
But businesses don’t just swallow those costs. They pass them on. The trucking industry is a great example.
“Due to razor thin margins in the trucking industry, these added costs cannot be absorbed and must be passed on to customers,” said the Canadian Trucking Alliance when analyzing the current Trudeau carbon tax.
The same concept applies to the Carney scheme.
If Carney removes the consumer carbon tax and replaces it with a higher tax on businesses under the hidden industrial carbon tax, that means more costs for farmers.
There isn’t any exemption for farmers under the industrial carbon tax. Oil and gas refineries will be paying a higher carbon tax and they will be forced to pass that cost onto their consumers. Farmers use a lot of fuel.
The pain doesn’t stop there. Farmers also use a lot of fertilizer and Carney’s carbon tax means higher costs for fertilizer plants. Then farmers will be stuck paying more for fertilizer.
Some businesses, like those fertilizer plants, could pack up and move production south. But farmers are still going to need fertilizer. Carney’s plan compounds the pain with carbon tax tariffs.
Fertilizer is only one example. If Canadian farmers need to buy a part to fix equipment that can only come from the U.S., it could be more expensive because of Carney’s carbon tax tariffs.
This will hurt Canadian farmers when they’re buying supplies. But it’ll also hurt when farmers when they go to market. Canadian farmers compete with farmers around the world and majority of them aren’t paying carbon taxes.
Farmers wouldn’t be at a disadvantage because American farmers are smarter or farm better, but because, under Carney’s carbon tax, they would be stuck paying costs competitors don’t have to pay. And farmers know this all too well.
“My competitors to the south of me in the United States do not pay that [carbon] tax, so now my cost goes up and I have no alternative,” said Jeff Barlow, a corn, wheat and soybean farmer in Ontario. “By penalizing me there’s nothing else that I can do but just be penalized.”
And if farmers won’t be the only ones hurt.
Families across Canada are struggling with grocery prices and increasing the cost of production for farmers certainly won’t lower those prices.
Carney says that he wants to cancel the consumer tax because it’s too “divisive.” That statement misses the nail completely and hammers the thumb. Canadians don’t want to get rid of the carbon tax because of perception, they want to get rid of it because it makes life more expensive.
Carney needs to commit to getting rid of carbon taxes, not rebranding the failed policy into something that could end up costing Canadians and farmers even more.
David Clinton
All the smart people tell us that, one way or another, increasing the minimum wage will change society. Proponents claim raising pay at the low end of the economy will help low-income working families survive in hyper-expensive communities. Opponents claim that artificially increasing employment costs will either drive employers towards adopting innovative automation integrations or to shut down their businesses altogether. Either way, goes the anti-intervention narrative, there will be fewer jobs available.
Well, what’ll it be? Canadian provinces have been experimenting with minimum wage laws for many years. And since 2021, the federal government has imposed its own rate for employees of all federally regulated industries. There should be plenty of good data out there by now indicating who was right.
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Historical records on provincial rates going back decades is available from Statistics Canada. For this research, I used data starting in 2011. Since new rates often come into effect mid-year, I only applied a year’s latest rate to the start of the following year. 2022 itself, for simplicity, was measured by the new federal rate, with the exception of British Columbia who’s rate was $0.10 higher than the federal rate.
My goal was to look for evidence that increasing statutory wage rates impacted these areas:
- Earnings among workers in full-service restaurants
- Operating profit margins for full-service restaurants
- Total numbers of active businesses in the accommodation and food services industries
I chose to focus on the food service industry because it’s particularly dependent on low-wage workers and particularly sensitive to labour costs. Outcomes here should tell us a lot about the impact such government policies are having.
Restaurant worker income is reported as total numbers. In other words, we can see how much all of, say, Manitoba’s workers combined took home in a given year. For those numbers to make sense, I adjusted them using overall provincial populations.
Income in British Columbia and PEI showed a strong correlation to increasing minimum wages. Interestingly, BC has consistently had the highest of all provinces’ minimum wage while PEI’s has mostly hung around the middle of the pack. Besides a weak negative correlation in Saskatchewan, there was no indication that income in other provinces either dropped or grew in sync with increases to the minimum wage.
Nation-wide, by weighting results by population numbers, we got a Pearson coefficient 0.30. That means it’s unlikely that wage rate changes had any impact on take-home income.
Did increases harm restaurants? It doesn’t look like it. I used data measuring active employer businesses in the accommodation and food services industries. No provinces showed any impact on business startups and exits that could be connected to minimum wage laws. Overall, Canada’s coefficient value was 0.29 – again a very weak positive relationship.
So restaurants haven’t been collapsing at epic, extinction-level rates. But do government minimums cause a reduction in their operating profit margins? Apparently not. If anything, they’ve become more profitable!
The nation-wide coefficient between minimum wages and restaurant profitability was 0.88 – suggesting a strong correlation. But how could that be happening? Don’t labour costs make up a major chunk of food service operating expenses? Here are a few possible explanations:
- Perhaps many restaurants respond to rising costs by increasing their menu prices. This can work out well if market demand turns out to be relatively inelastic and people continue eating out despite higher prices.
- Higher wages might lead to lower employee turnover, reducing hiring and training costs.
- A higher minimum wage boosts worker incomes, leading to more disposable income in the economy. Although the flip-side is that we can’t see strong evidence of higher worker income.
- Higher wages can force unprofitable, inefficient restaurants to close, leaving stronger businesses with higher market share.
In any case, my big-picture verdict on government intervention into private sector wage rates is: thanks but don’t bother. All that effort doesn’t seem to have improved actual incomes on a population scale. At the same time, it also hasn’t driven industries with workers at the low-end of the pay scale to devastating collapse.
But I’m sure it has taken up enormous amounts of public service time and resources that could undoubtedly have been more gainfully spent elsewhere. More important, as the economist Alex Tabarrok recently pointed out, minimum wage laws have been shown to reduce employment for the disabled and measurably increase both consumer prices and workplace injuries.
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