Canada Closes its Borders Three Days After Ratifying New Trade Deal
Yesterday, Canada closed its borders to most non-residents as it evaluates more aggressive measures to contain the Coronavirus. This decision comes just three days after Canada approved the United States-Mexico-Canada Agreement (“USMCA”). With Mexico approving the USMCA last June and the U.S. earlier this year, Canada is the final party to approve the new deal that will replace the 25-year-old North American Trade Agreement (“NAFTA”).
The Canadian Parliament quickly ratified the USMCA right before Parliament was set to shut down for five weeks due to the Coronavirus epidemic. Canada’s top trade negotiator Deputy Prime Minister Chrystia Freeland said passage of USMCA was critical amid the "unprecedented challenge from the coronavirus pandemic."
“Getting NAFTA done was something that was entirely within the power of Canadian legislators to do, and something we were able to do to help the Canadian economy at this challenging time,” said Freeland.
Canada’s approval begins a three-month period for all three parties to agree on implementation regulations, including naming each country's representatives for the USMCA’s conflict resolution mechanism. Despite the business community’s eagerness for prompt approval of the USMCA to reduce uncertainty created by the trade wars, the Coronavirus is certain to put delays on the USMCA rollout and complicate the three-month review period.
As we discuss further below, the Coronavirus is just the most recent catalyst of a larger global crisis that has been brewing for the past several months. The underlying and unsustainable causes of the current crisis will force us to consider how to improve our global society after the dust settles.
Coronavirus Puts Preexisting Global Problems Under the Microscope
Although the current crisis will subside in time, the global arena has shifted so significantly in a few short months that we may need to adjust our prior expectations for the future of North American Trade and global trade as a whole. Before “Coronavirus” was a household word, global trade was already experiencing a sea change. China’s explosive growth since the 90’s had been losing steam even before the trade war, which contributed to an additional 16% reduction in Chinese imports to the United States in 2019. Trump’s policies follow a protectionist trend across the West, most notably Brexit, that are all similar misguided efforts founded in xenophobia that are only hindering global growth.
These events have led to some alarmist headlines like “Will Coronavirus End Globalization”? Despite the depth of the crisis, it is unlikely to cause globalization to retreat in the long term. The world has become increasingly connected for centuries, and a combination of integrated supply chains and technology make it unlikely that the system will unravel. What is more likely is that globalization as we know it—a system dominated by superpowers like the United States and China that has followed a predictable line of indiscriminate development, lower trade barriers, and the pursuit of the cheapest labor—may have to be reconsidered.
The current crisis highlights some problems with our familiar style of globalization that was arguably long due for an overhaul. One problem with the status quo was America’s overreliance on the China-dominant global supply chain. This has had a direct impact on pharmaceuticals needed to combat the current virus and other ailments, as 80% of the active pharmaceutical ingredients in U.S. medicines are produced abroad, mainly in China and India, including 97% of antibiotics.
The Coronavirus outbreak is also associated with global economic trends like urbanization, animal consumption, and increased travel. China is the epicenter of many of the economic trends that make pandemics more likely. No country has urbanized more rapidly in the past quarter-century. In 2018, 59% of its population lived in urban areas, up from 36% in 2000 and 19% in 1980, according to the World Bank. During the same period, China became the epicenter of global manufacturing.
Increased travel and mobility, essential to multinational business, also contributed to the spread of the virus. Between 2003 and 2018, air traffic between the U.S. and China increased to 8.5 million passengers from fewer than 700,000, according to the U.S. Transportation Department.
Wuhan, the Chinese city where Covid-19 first appeared, is an example of these trends. Between 2000 and 2018, its population grew from eight million to 11 million. In the process, developed land in the city more than tripled, according to the Wuhan Statistics Bureau.
Growing animal consumption is also putting people in closer contact with livestock such as pigs and chickens, which can act as carriers of disease from other species. Between 2000 and 2019, global consumption of chicken grew to 97 million metric tons from 53 million, according to the U.S. Department of Agriculture. And as dense populations spread, Mr. Daszak says, people and their livestock are coming into closer direct contact with wildlife that are direct carriers of disease.
“Urbanization, agricultural intensification and deforestation are all part of the land-use change variable that was significantly correlated with emerging infectious diseases,” said Peter Daszak president of EcoHealth Alliance, a New York-based nonprofit research group that built a database tracking global disease events.
So Should we Globalize Less and Go Vegan?
As the world appears to be entering a recession and governments scramble to save failing industries, there will be little public willingness to tackle problems like urbanization, global travel, and consumption in the near term. However, once we overcome this crisis like we have done with all others, is there an opportunity to build a better world from the rubble?
As we discussed in our prior article on the USMCA, some experts suspect that a combination of China’s troubles and new UMSCA provisions requiring regional manufacturing may result in significant re-shoring of labor from Asia to North America. This system would not only benefit the North American trading block but also be a more sustainable alternative to wide overseas supply chains. These regional benefits to North America would be enhanced by provisions such as increased labor protections. The transition to a more regional supply chain could also serve as a template for other regions that have suffered adverse effects of globalization, including South America and Sub-Saharan Africa.
Politically, there is an increasing appetite for a more sustainable economic system. This is exemplified by the success of Bernie Sanders with young voters. Although it is increasingly likely that Biden will get the nomination, the relatively younger voters who care more about the environment and climate change will not disappear, but instead only increase in numbers and gain more influence over the years.
Fabrizio Pagani, a former adviser to the Prime Minister of Italy, draws on previous shocks for guidance. “The oil supply shock in the 70s led to the first efforts of energy conservation and efficiency,” he said. “The demand shock determined by the great financial crisis was the rationale for a new, quite radical, regulatory framework across the banking and financial sectors.”
James Boughton, who served for decades at the International Monetary Fund, including as the fund’s historian, cites the collapse in South Korea and Indonesia as catalysts for significant changes in those countries.
“Only in a crisis are governments able to rally people to accept necessary but painful reforms,” said Boughton. “Every crisis is also an opportunity.”
Camino Aztlán does not mean to downplay the current global crisis. Our hearts are with the sick and the countless others who are worried about their livelihoods. We are committed to supporting small businesses and workers during this challenging time. We are also committed to thinking about creative ways to turn this crisis into a more equal and sustainable world.
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