By Alan W. Dowd and Alexander Moens
Diplomat and International Canada  | Spring 2011

The world has weathered profound economic challenges since the summer of 2008, challenges that could have fractured, or at least stunted, the all-important partnership between Canada and the United States. Yet almost three years later, the Canadian-American relationship remains strong, and it remains Canada’s most important economic, political and security bond in foreign affairs. As new challenges emerge in North America and beyond, the world is reminding Washington of how important Canada is to the United States.

Border Barriers

Two-way trade is lower as a result of depressed American demand and the high Canadian dollar (Export Development Canada). This problem is most acute for Canada, since its share of trade with the United States accounts for 65-70 per cent of its total trade, and its trade with countries other than the United States puts it in a trade-deficit position (Foreign Affairs and International Trade Canada).

The chief obstacles to growing bilateral trade, besides currency values and U.S. demand, are relatively low productivity gains in Canada, high costs of transiting the border, and protectionist policies in various sectors in both countries. 

Two of these fall under what might be called “border-barrier issues.” After a shaky start, Prime Minister Harper and President Obama have worked together to identify and tackle such issues. For example, the two leaders negotiated a partial remedy to the “Buy-American” language included in the so-called stimulus legislation passed by Congress.

They also recognized the negative effect security and regulatory measures can have on trade. As key sectors begin to recover—the “domestic” auto sector, for instance—it is urgent to lower regulatory and security barriers at the common border so that the long-developed integrated supply chain in manufacturing can grow again. This mode of production must expand between our two countries—and eventually Mexico—in order to compete globally with large emerging economies such as China and India, and with other regional trading blocs.

Spill-over of this integrated mode of manufacturing into new sectors will have a positive impact on the other obstacle to expanding bilateral trade: Canadian productivity.

The “Beyond the Border” accord announced in February 2011 contains several good ideas, including pushing certain security checks outward to our common perimeter and harmonizing biometrics and other identification data (Fraser Institute). Both the Regulatory Cooperation Council and the Beyond the Borders Working Group are welcome additions to making the border more efficient. In some ways, the accord picks up where the doomed trilateral Security and Prosperity Partnership left off but does so in a more focused manner that allows Canada and the United States to move ahead at their own speed.

Flexible Friendship

Thanks to a positive interpersonal dynamic between Harper and Obama, the U.S. and Canada have found common ground on Afghanistan.

Harper was right to heed Washington’s insistent call not to withdraw Canadian forces from Afghanistan in 2011, as this would have had a corrosive effect on the NATO-led mission and hampered efforts to bolster the Afghan government, stabilize the country and check the Taliban.

Likewise, Obama was right not to push Ottawa too far. To be sure, the U.S. would have welcomed an extension of Canada’s significant contribution to combat operations. However, Canada already has deployed some 2,800 troops, lost 154 in battle, and spent billions fighting the Taliban. Going forward, Canada’s commitment of 950 troops to the NATO training mission will strengthen Afghanistan’s security forces and thus contribute to Afghanistan’s long-term stability.

The same mix of flexibility and understanding will serve Harper and Obama well in their ongoing dialogue over energy and the environment.

As the climate-change debate begins to moderate a bit, Harper must resist the call by environmental groups to impose unilateral regulations; Obama must resist those who think exacting economic costs on this file are warranted; and both leaders must appreciate the political realities the other is facing.

Hopefully, Parliament and Congress can recognize the benefits of selected incentives and innovation rather than punitive measures. The rising price of crude oil will do more for energy diversification than arbitrary CO2 caps.

If Harper and Obama make progress on border barriers, a move to coordinate energy policy would be a logical next step, as the Canadian-American oil, gas, and electricity sectors are the most deeply integrated bilateral energy sectors in the world. There is an opportunity for the energy sectors to grow in hydro-electric, unconventional gas, conventional crude oil, and crude oil from the oil sands.

Arctic Allies

That brings us to the looming competition for energy resources in the Arctic. The Arctic may hold 1,670 trillion cubic feet of natural gas and 90 billion barrels of oil (U.S. Geological Survey).

Although Russian Prime Minister Vladimir Putin recently expressed his desire “to keep the Arctic as a zone of peace and cooperation,” actions speak louder than words. In 2009, Moscow announced plans to build a string of military bases along Russia’s northern tier (UPI). In 2008, a Russian general revealed plans to train “troops that could be engaged in Arctic combat missions” (AFP). And during a 2007 expedition, a Russian team provocatively declared, “The Arctic is ours” (Clover).

Russia’s outsized Arctic claims—made in a brazen military context—have led to a renewed recognition of the importance of Canada-U.S. security and energy ties. Together, the two democratic partners are mapping the continental shelf to ensure that the Arctic’s resources are justly distributed. This is a good sign. Canada and the U.S. should view their chunks of the Arctic as a shared resource and responsibility, similar to how both nations view the Great Lakes.

Yet in order to fend off Russian encroachment, they need to invest in Arctic capabilities. Budgetary constraints have eroded plans by various Canadian governments to do this. And the fact that the U.S. has only three polar icebreakers speaks volumes about America’s current Arctic capabilities. Russia, by comparison, can deploy 20 icebreakers (Congressional Research Service).

Given Moscow’s actions, it’s only prudent for Canadians and Americans to think about the Arctic in a security context. They’re not alone. NATO officials call the Arctic an area “of strategic interest to the alliance” (de Hoop Scheffer). Denmark joined Canada and the U.S. for Arctic military maneuvers last August (Comte). This followed Norwegian-led exercises in the Arctic and Denmark’s announcement that it’s creating an Arctic military command (Weber).

Taking a defensive posture need not undermine genuine efforts by all Arctic nations to find peaceful, negotiated solutions to dividing the Arctic’s resources equitably. In fact, such a united front could, paradoxically, keep the peace. As Churchill once said of his Russian counterparts, “There is nothing they admire so much as strength.”

In the Arctic and beyond, Canada and the United States need each other—and the world needs them to work together to keep the peace and promote prosperity.

Sources: “Domestic economy buoys exporter confidence: EDC Trade Confidence Index” Export Development Canada, June 17, 2010; “Canada’s State of Trade; Trade and Investment Update 2009” Foreign Affairs and International Trade Canada, 2010; Alexander Moens and Michael Cust “Saving the North American Security and Prosperity Partnership: The Case for a North American Standards and Regulatory Area” Fraser Institute Publications, March 18, 2008; Campbell Clark, “Price tag of Canada's Afghanistan mission: up to $18 billion,” Globe and Mail, March 31, 2009; U.S. Geological Survey, “90 Billion Barrels of Oil and 1,670 Trillion Cubic Feet of Natural Gas in the Arctic,” July 23, 2008; UPI, “Russia’s Arctic Circle Claims Worry NATO,” October 2, 2009; AFP, “Russian Troops To Train in the Arctic,” Defense News, June 24, 2008; Charles Clover, “Diplomatic Battle Begins over Arctic,” May 27, 2008, London Telegraph; Michel Comte, “Harper Visits Arctic, Russian Bombers Too,” AFP, August 25, 2010;Bob Weber, “Denmark Joins Arctic Arms Race,” Toronto Star, July 26, 2009; Jaap de Hoop Scheffer, Speech on Security Prospects in the High North, Reykjavik, Iceland, January 29, 2009;Congressional Research Service, “Coast Guard Polar Icebreaker Modernization: Background, Issues and Options for Congress,” CRS Report for Congress, 2008.