A Canadian economic response to Trump

Hey there, time traveller!
This article was published 05/12/2024 (664 days ago), so information in it may no longer be current.

Canada’s long codependent economic relationship with the United States is about to abruptly and involuntarily end.

The election of a tariff-obsessed, unpredictable, crony capitalist autocratic Donald Trump administration requires Canada to rethink its economic future.

Fortunately, our common history provides instructions for how we have dealt successively with a massive exigency in the past. The only serious option for Canada, given the significance of the isolationist chaos south of the border, would be to introduce an industrial policy much like Canada (and the U.S.) did during the Second World War, which transformed this country into a dynamic advanced industrialized economy that paid dividends for decades.

In 1933, the Canadian unemployment rate was 30 per cent, while 20 per cent of the population became dependent on government welfare for survival. The unemployment rate remained above 12 per cent until the start of the Second World War in 1939. In the six-year period between 1939 and 1945 once Canada entered the Second World War and changed the anatomy of its economy, GNP more than doubled, the unemployment rate fell to one per cent by 1944, while wages grew nearly 70 per cent.

How did this happen? The Mackenzie King government took control of the economy in the form of a publicly funded and a directed supply-side industrial policy.

Resources and labour were channelled to produce for the war effort and the core needs of the community. Twenty-eight Crown corporations were established, massive public and private investments meant factories multiplied, corporate taxes were doubled and excess profits taxed, generating revenue for these investments.

Along with the stick was the carrot of providing special incentives to renovate plants and acquire machinery, infrastructure development, regulations, and research and development support.

The United States’ Second-World-War Roosevelt administration ran huge budget deficits, raised taxes, compelled, and incentivized industries to produce what the economy needed, imposed wage and price controls and, at times, purchased half of all production.

In the United States from 1941 to 1945, industrial production and productivity doubled as the war economy brought full employment, wage growth of 50 per cent, higher taxes and therefore a compressed income distribution. GDP grew at 11 to 12 per cent and unemployment fell from 14.6 per cent in 1940, to 1.2 per cent in 1944. New technologies, industries, and human skills, mass transportation and new sources of raw materials evolved from the ashes of a decade long depression as a result of government funding, planning, and regulation.

Women in both countries entered the paid labour force in great numbers.

In exchange for dropping out of the Democratic presidential primary in 2020 and endorsing Joe Biden, Bernie Sanders and his advisers became part of a Unity Task Force along with Biden’s and fellow candidate Sen. Elizabeth Warren’s policy team.

This coalition of centre-right and left Democrats collectively and quickly produced a 110-page set of potential policies in July 2020.

These policies focused on reviving American manufacturing by concentrating resources on climate change and infrastructure, and a second plan focused on racial economic equality referred to as the “care economy.”

Gone were the days of dealing with climate change with carbon taxes or cap and trade — the Biden government was going to build a green economy. Gone were the days of relying on redistribution alone in order to create more equitable society with a program of pre-distribution, requiring union wages to rebuild the green economy.

The U.S. became the envy of the industrialized world with respect to GDP growth, price stability, full employment, real wage increases and an enthusiastic stock market as it revived its manufacturing sector from one end of the country to the other building a green economy. And it was just getting started.

Incoming U.S. President Donald Trump has promised to trash the Inflation Reduction Act and with it the build back better plan, turning the growing green belt back into a rust belt, as well as cutting trillions from the U.S. budget based on a dubious, contradictory, chaotic set of economic policies. Who in the world will begin to fill this void?

What would it take for Canada to become a leader in green energy, sustainable agriculture, green transportation, biotechnology, a resilient and digitalized, high-value-added processing economy?

Canada’s private for-profit sector is a notorious laggard when it comes to research, development, and investment compared to our G20 and OECD counterparts. Maybe the unthinkable; a common front Liberal and NDP Unity Trust government committed to the kind of economic renewal that occurred when the country last faced a near existential threat.

If we remember our history, we need not share the fate of our neighbours to the south. Canada could become that shining city on a northern hill!

Robert Chernomas is a professor of economics at the University of Manitoba. Maude Barlow is an activist and author.