Budget 2024

Tax and spend fiscal plan will inhibit growth

As published in the Financial Post

Earlier this month I had the privilege of leading a Canadian business delegation to the North American Leaders’ Summit in Mexico City. We left encouraged by what we heard from all three governments, most especially the growing alignment and consensus on the need to seize the economic opportunities available to us as a continent.

Among the developments was an unexpected announcement during the closing press conference with the three leaders. To the surprise of many, President Andrés Manuel López Obrador said they had agreed to create a high-level joint committee on import substitution.

One hopes this was a misnomer. Import substitution isn’t a benign synonym for friend-shoring. Nor is it shorthand for policies to promote private-sector investment in North America. It’s a term that has its origins in 1970s-era protectionism. Canadian business leaders would oppose any effort by the three governments to restrict where we can operate, invest, or source inputs and imports. American and Mexican businesses leaders would undoubtedly take a similar position.

With the right focus and mandate, however, a high-level committee could be a useful vehicle for achieving progress under our existing trilateral trade agreement. On this point, Ottawa and Washington appear to agree. Insiders say the two governments are leaning toward the concept as a way to identify economic complementarities, enhance regional competitiveness and strengthen our collective economic security. If so, that’s something business leaders can get behind.

We must be clear, though, that strengthening the continental economy doesn’t mean cutting ourselves off from the rest of the world. Quite the opposite. North America can be the world’s leading supplier of food, fuel, medicine, innovative technologies, electric vehicles, manufactured goods and much more. More trade within North America can stimulate more trade with North America.

If such a committee is struck and starts work soon, it could set us up for success at the next North American leaders’ summit, which Canada hopes to host in December. Success in this context means all three countries would agree to act on recommendations made by the committee to strengthen our increasingly interconnected and integrated economies.

López Obrador proposed that the committee consist of four people from each country. He has already named Mexico’s representatives: three members of his cabinet — the secretaries of finance, economy, and foreign affairs — plus his former chief of staff, Alfonso Romo, who is a highly regarded and respected business leader.

Each of López Obrador’s nominees is important and influential. The three government officials have key roles and responsibilities related to the full implementation of the Canada-United States-Mexico Agreement (CUSMA). They are all people with whom Canada should engage more often. Working with them as a group would help keep everyone on the same page.

If United States President Joe Biden were to name representatives of equal standing — such as Secretary of State Antony Blinken, Commerce Secretary Gina Raimondo, Treasury Secretary Janet Yellen or United States Trade Representative Katherine Tai — the committee would become a critically important mechanism to promote and build on CUSMA.

It’s true that there are already various governmental committees with somewhat similar mandates. Crucially, though, there is currently no comparable cross-departmental cabinet-level forum for economic dialogue among the three countries.

López Obrador has already set Mexico’s nominees to work on an action plan and says he will meet with them monthly. Prime Minister Justin Trudeau should follow suit by appointing Canada’s representatives so they can help shape that plan and ensure it’s properly focused on priorities such as economic security and export promotion — not import substitution.

If anything is going to come of this initiative, however, time is of the essence. Mexico and the United States have fixed-date presidential elections in 2024, and Mexico’s constitution prevents López Obrador from seeking a second term. Meanwhile, Biden’s ability to deliver on commitments will wane as election day nears — especially should he decide not to run for re-election.

President López Obrador deserves credit for championing a high-level trilateral committee that includes private sector representation. Prime Minister Trudeau should take him up on the idea — provided the focus is on economic growth, not protectionism.