Geopolitics on the rocks

Joseph Shupac

Trudeau walks a tightrope

North America

Spurred by international popularity and a large majority in parliament, for the past year and a half Canada’s prime minister Justin Trudeau has pursued a foreign policy not wholly beholden to the US. But Ottawa’s economic dependency on Washington will soon curtail his room for manoeuver.

A year and a half ago, Justin Trudeau led Canada’s Liberal Party to its 24th-ever federal election victory, receiving the largest majority in parliament any party has had since 1984, the same year Trudeu’s own father resigned as Prime Minister. The victory was, understandably, received with much fanfare within the country. Unusually for Canada, it also attracted nearly as much attention abroad.

In Canada, most voters were mainly just happy to see the exit of Conservative leader Stephen Harper, who had been PM for a decade until his failure to defeat Trudeau. Harper had not only beaten the historically dominant Liberals during his tenure, but from 2011-2015 also presided over their falling to third place in Canada’s Parliament for the first time in Liberal history. Many Canadians were therefore enthralled with this Liberal Party comeback story, of “Bonnie Prince Justin”.

Trudeau, a son of one of Canada’s longest-serving Prime Ministers, was born in 1971 while his father was still in office. He is the first Canadian leader to ever be related to a former Prime Minister. If you would like to grasp some of the symbolic import of Trudeau’s victory, try pretending that, in the 2050s, Baron Trump were to become the President, receiving the biggest electoral college victory America has seen in thirty years, in an election immediately following a period in which the Republican Party was humiliated by becoming the third-ranked party n the election preceding Barron’s victory. Or, perhaps less outrageous, imagine that in 2032 Chelsea Clinton were to do a similar thing for the Democrats.

Outside of Canada, of course, the reception to the election of Trudeau was entirely different.

The election was held soon after Donald Trump first rose to the top of the polls in the Republican Party primary, and weeks after Russia first began its military campaign in Syria. More broadly, it was held during the (ongoing) political phenomenon in which right-wing leaders appear to be strengthening across much of the globe. Many people were pleased, therefore, to see a photogenic, social-progressive leader emerge in Canada.

However, the view from Ottawa has always been somewhat constrained. Looking at the world today, Canada sees mostly a contrast. Abroad are right-of-centre governments; within the “Anglosphere” alone there is now Trump, Theresa May, Malcolm Turnbull, Narendra Modi, and others. At home, on the other hand, eight out of ten Canada’s provincial governments, including those of three out of four of Canada’s largest provinces, are led by left-wing parties, all but one of which are Liberal and all of which enjoy majorities within their respective provincial parliaments.

Moreover, as nearly every editorial column in Canada has correctly been remarking on for the past year, Trump’s impact on the Canadian economy may not necessarily be a welcome one — the Keystone Pipeline’s approval notwithstanding. That is why, rather than embark upon a bold spending plan as they had been expected to when they first came into office, two weeks ago the Liberals unveiled a more reserved annual budget that will adhere to what they are calling a “wait and see approach”, citing the uncertainty resulting from Trump as their primary reason for fiscal restraint.

With this partial retreat on the budget in mind, it is important that we mostly reflect on the constraints —both Trump-related and not — that govern and shape Trudeau’s actions now that he’s firmly in power.

A closer scrutiny of Canada’s current situation

2011 was the year of the first federal election held in Canada following the “Great Recession”. It was a year of $110 a barrel oil prices, but only 1.6 percent GDP growth in the United States and 2.5 percent growth in Canada. This discrepancy, between high energy prices and low US growth—a dynamic which, prior to 2011, had not been felt since the early 1980s—caused the strengthening of western Canada’s economy relative to that of central Canada. Either coincidentally or not, the political parties associated most closely with central Canadian provinces, namely the Liberals and the Bloc Quebecois, were dealt a severe blow in 2011.

It was the first time ever the Liberals became a third party (they won just 34 of the 308 seats in Parliament), and the first time in party history that the Bloc won fewer than half of Quebec’s seats. The Conservative Party, meanwhile, led by a Calgary, Alberta MP Stephen Harper, achieved in 2011 their first majority government since the election of 1988. This victory was also the first time Conservatives had won three consecutive federal elections since 1962, and the first time that any party had won in at least eight of ten provinces with the exceptions of 1984, 1958, and the World War elections of 1940 and 1917.

Intriguingly, when US economic growth picked up and energy prices plunged in 2014 and 2015, the very next election saw the Conservatives swept out of power to give way to a new Liberal majority, under a new Trudeau. As with the influence of geography upon politics, it is difficult to know to what extent such ties between economics and politics is coincidental, or to what extent they are conditioned by geography or history.

What really matters for the Canadian economy, though, is that energy prices and American growth not drop at the same time. Luckily, they have not done so for a sustained period since the 1930s. While they did decline simultaneously in 2008, the decline was relatively short-lived, with resource prices and, to a lesser extent, GDP growth leaping back up in the following years as a result of economic stimulus in both Asia and America.

More recently, oil prices have plunged, from around $100 per barrel (WTI) from 2011 until mid-2014, to around $40 since. (In the 15 months leading up to the 2015 election that Harper lost, oil dropped by $60). At the same time however, US economic growth has reached its highest levels since 2007. This has provided a buffer to Canada. It has particularly helped Ontario, which is unique among the provinces in that there are large population centres located immediately to both sides of the Ontario-US border.

The Challenge Ahead

This is the core of the current challenge facing the country, which will define its politics, economics, and foreign policy for the duration of the current Liberal administration. Resource prices and US growth have often run counter-cyclical to one another in recent decades. Commodity prices’ lowest lows (inflation adjusted) came in the 1990s when the US economy was booming. Commodities’ highs came in the 1970s and early 1980s, during the era of “stagflation”. This meant the Canadian economy was always in relatively sound shape, benefiting either from rising energy prices or growing exports to the US.

It was only at the end of the past year — the not-so-sweet 2016 —that Canadians began to realize that, maybe, they are heading towards a situation country in which their trade could be imperiled by US protectionism, at the same time as energy prices could be kept low by the American fossil fuel boom and slow-growing global economy.

This was, in fact, pretty much the message of the annual federal budget the Liberals unveiled earlier this month, in which they decided not to gamble on the fiscal stimulus they had promised during and since the 2015 electoral campaign, adopting a “wait and see” approach to the economy instead. They have cited the potential commercial instability of the newly arrived Trump administration, along with weak growth in the world economy as a whole, as a primary reason for this budget being a lot more cautious than last year’s.

Of course, there is no reason to be an alarmist about this. Canada is Canada, after all, and would likely emerge from any economic slowdown or foreign political volatility relatively unscathed. Also, as many commentators have rightfully pointed out, Trump might go easy on Canada in NAFTA talks, and he has already approved the new Keystone pipeline from Alberta which Obama’s administration had previously blocked.

Yet even these kindnesses may have unforeseen consequences. If Trump and the Republicans do indeed leave trade between Canada and the US untouched, and allow for pipelines like Keystone, and if they also follow through with their plans to rejuvenate the US Midwest, it would likely cause US trade with both western Canada and central Canada to grow. This, however, is just the opposite of what many Canadians have long hoped of accomplishing; namely, to reduce the enormous commercial dependence Canada has on the US, and instead increase interprovincial trade or exports to other nations.

For Liberals in particular, who mostly abhor Trump, too much of a dependence on the current American administration could be politically difficult to handle. It is not unthinkable even that they would try to craft a symbolically vigorous foreign policy that would be partly intended to show that they are not wholly beholden to the US. This could involve engaging in diplomatic or security interventions in places like West Africa; it could even include taking a strong rhetorical position in defence of the autonomy of Ukraine. Canada, in fact, may be home to the world’s largest Ukranian diaspora; a diaspora which includes Chrystia Freeland, who only three months ago was promoted to become Canadian Minister of Foreign Affairs.

Either way, for Canada to chart a foreign policy that is independent of American decision-making could be difficult, given Canada’s military remains relatively small and Canada’s economy is so dependent on the US.

This is the tightrope that Trudeau now walks. He is an outspoken liberal, dealing with a Liberal majority in Parliament and many liberal Premiers in the provinces. Yet he faces a radically different type of leader in Donald Trump, who presides over Republican majorities in both American houses of Congress. Making matters even trickier, many other countries Trudeau must deal with now have right-wing leaders as well; including fellow Commonwealth states like Britain, India, and Australia. As such, Trudeau might soon have to face a classic dilemma: whether or not to place his party’s political ideals ahead of the national interest.

Even a Canadian team winning the Stanley Cup a month from now, for the first time since 1993, would not relieve Trudeau of this balancing act.