Are Trade Imbalances Good for Canada?

And what if they make our trading partners sad?

A recent Free Press piece offered the provocative argument that decades of free trade policies - and the economic ideologies that spawned them - were largely a mistake. A mistake, it must be noted, that permanently crippled the careers and lives of millions of Americans. The article quotes a handful of long-time “globalist skeptics” claiming that many economists have long known how much damage free trade was doing to American workers, but were often too frightened to say anything about it.

One popular argument for free trade was that offshoring factory work to developing nations (like China in the 1990’s) would introduce cheap consumer goods and free up American workers for higher-paying and more sophisticated and productive work. The cheap consumer goods certainly arrived, but that was small comfort for countless industrial regions throughout the U.S. heartland that never recovered when those “more productive” jobs failed to materialize.

All of which left me wondering about Canada’s experience. In hindsight, has free trade damaged our economy, too? And as a related question, have trade deficits - or surpluses, for that matter - caused us more harm than good?

To try to answer that first question, I pulled data representing the total annual dollar values of imported merchandise since 1988,¹ and unemployment numbers for all provinces and Canada as a whole for the same period. I then looked for correlations between trends in annual imports and unemployment. I figured that unemployment was where the risks of free trade should - as happened in the U.S. - make themselves known. I ignored the COVID years (2020-2021) because they were just too strange to be helpful.

In fact, there was a strong negative correlation (𝑟 ≈ −0.83). In other words, higher imports are, over time, associated with lower unemployment. This, of course, doesn’t prove that imports caused lower unemployment. And there are plenty of important economic metrics where Canada has deeply under performed the U.S. through these years. But it does suggest the intriguing possibility that our outcomes were largely decoupled from those of our largest trading partner.