June 27, 2012
How Obama Lost Canada
Botching Relations With the United States’ Biggest Trade Partner
Derek H. Burney and Fen Osler Hampson, Foreign Affairs, June 21, 2012
Permitting the construction of the Keystone XL pipeline should have been an easy diplomatic and economic decision for U.S. President Barack Obama. The completed project would have shipped more than 700,000 barrels a day of Albertan oil to refineries in the Gulf Coast, generated tens of thousands of jobs for U.S. workers, and met the needs of refineries in Texas that are desperately seeking oil from Canada, a more reliable supplier than Venezuela or countries in the Middle East. The project posed little risk to the landscape it traversed. But instead of acting on economic logic, the Obama administration caved to environmental activists in November 2011, postponing until 2013 the decision on whether to allow the pipeline.
Obama’s choice marked a triumph of campaign posturing over pragmatism and diplomacy, and it brought U.S.-Canadian relations to their lowest point in decades. It was hardly the first time that the administration has fumbled issues with Ottawa. Although relations have been civil, they have rarely been productive. Whether on trade, the environment, or Canada’s shared contribution in places such as Afghanistan, time and again the United States has jilted its northern neighbor. If the pattern of neglect continues, Ottawa will get less interested in cooperating with Washington. Already, Canada has reacted by turning elsewhere -- namely, toward Asia -- for more reliable economic partners.
The United States' mistreatment of Canada extends beyond economic issues.
Economically, Canada and the United States are joined at the hip. Each country is the other’s number-one trading partner -- in 2011, the two-way trade in goods and services totaled $681 billion, more than U.S. trade with Mexico or China -- and trade with Canada supports more than eight million U.S. jobs. Yet the Obama administration has recently jeopardized this important relationship. It failed to combat the Buy American provision in Congress’ stimulus bill, which inefficiently excluded Canadian participation in infrastructure spending.
What’s more, by engaging in protectionism, Washington has violated the substance and spirit of the North American Free Trade Agreement, the trade bloc formed in 1994 among Canada, the United States, and Mexico. As a result, NAFTA, which was initially intended as a template for broader trade expansion by all three partners, has languished while each country has negotiated a spaghetti bowl of bilateral trade agreements with other countries. Trilateral economic summits among the NAFTA partners have become little more than photo-ops accompanied by bland communiqués. Bilateral meetings between U.S. and Canadian leaders, which were a regular feature of the Bill Clinton and George W. Bush eras, have also mostly fallen by the wayside. Meanwhile, the United States demanded upfront concessions from Canada as the price of entry to negotiations over the Trans-Pacific Partnership, a regional free-trade group, while preserving massive agriculture subsidies of its own. The protracted wrangling over a seat at the table does not augur well for meaningful progress.
After years of procrastination, Canada finally secured an agreement for a new Detroit-Windsor bridge -- over which 25 percent of trade between Canada and the United States crosses -- but only after it offered to cover all of the initial costs. The U.S. share is to be repaid over time by the tolls collected, but any shortfalls will rest with Canadian taxpayers. Canada was essentially forced to hold negotiations with Michigan; the U.S. federal government observed quietly from the sidelines.
The United States’ mistreatment of Canada extends beyond economic issues. Washington has also failed to trust and respect its loyal ally. To name one small but telling example, when Canada ran for a nonpermanent seat on the UN Security Council in 2010, the United States offered little support. For whatever reason, Portugal was a more compelling choice.
One would also think the United States and Canada could find common ground on security, economic, and environmental issues in the Arctic, an area of shared sovereignty and responsibility. Yet there has been little more than senseless bickering and public spats between Ottawa and Washington on who should attend what meeting of Arctic states. U.S. Secretary of State Hillary Clinton, for example, went out of her way to rake Canada over the coals for hosting a meeting of Arctic coastal nations in March 2010 and failing to invite other countries with “legitimate interests” in the region. But she was also taking a jab at Canada’s long-standing claims to the waters of the Arctic archipelago, including the Northwest Passage, which the United States rejects. While Canada and the United States squabble, Russia and China are aggressively asserting their own interests in the region.
Beginning with Obama’s visit to Ottawa in February 2009, Canada has also made repeated overtures to find consensus on climate change, pressing for common North American approaches and fuel standards to curtail carbon emissions. No representative from the Obama administration showed any interest in such a strategy; instead, the administration preferred a unilateral approach, which died in the Senate. The bilateral “clean energy dialogue” Obama touted during his 2009 visit has become a monologue.
In Afghanistan, Canada is now rapidly scaling back its substantial commitment to the military mission, thanks to the United States’ increasingly erratic, if not embarrassing, direction. Canada has spent billions on the war and lost over 150 soldiers, proportionately more than any other ally, but has received no tangible dividend for its support on bilateral or multilateral issues of concern to it. Canada also participated in NATO’s mission in Libya -- where a Canadian, Lieutenant-General Charles Bouchard, commanded military operations. Canada has no tangible interests of any kind in Afghanistan or Libya. Its participation in those countries, proportionately larger than any other ally, was intended primarily to strengthen the partnership with the United States on the theory that solid multilateral commitments would engender more productive bilateral relations. That proved not to be the case.
The only good news in U.S.-Canadian relations to come out of this White House has been the Beyond the Border declaration, a joint statement that Obama and Canadian Prime Minister Stephen Harper issued in February 2011. The initiative was supposed to remove much of the bureaucratic sludge that has thickened the U.S.-Canadian border since 9/11, including costly inspection and reporting requirements on virtually all cross-border shipments. Despite the initial fanfare, however, the border initiative has yet to deliver much of substance, and there has been little evidence to suggest that Obama remains engaged.
Of course, the U.S.-Canadian relationship has had its rocky moments before. In the 1970s and 1980s, in response to public concern over the United States’ economic domination of Canada, Ottawa enacted a wide variety of protectionist measures that irritated Washington. Eventually, the two countries recognized their mutual interests and resolved what differences they had, ratifying the Canada–United States Free Trade Agreement in 1987 and its successor, NAFTA, seven years later.
Back then, Canada had little choice but to find a way to fix its relationship with the United States, the only game in town. Ottawa is in a different position now. Today, it enjoys a respectable platform of self-confidence, having weathered the financial crisis and ensuing recession far better than the United States. And unlike in the past, Canada can now look beyond its own neighborhood for economic opportunities -- especially to the rising economies of Asia.
Unlike in the past, Canada can now look beyond its own neighborhood for economic opportunities -- especially to the rising economies of Asia.
Indeed, Canada has made a full-court press in the Asia-Pacific region. It is wooing countries such as China, India, Japan, and South Korea, which are eager to invest and trade in Canadian minerals, energy, and agricultural products. Harper has announced Canada’s intention to explore free-trade negotiations with China, and talks with Japan, Thailand, India, and South Korea are under way. As Harper put it during a visit to China in February, “We want to sell our energy to people who want to buy our energy.”
To be sure, Canadian companies will never abandon the U.S. market. Nevertheless, the U.S. recession and the rise of Asia have allowed Canada to diversify its economic relations. In 2010, only 68 percent of Canadian exports were destined for the United States, down from 85 percent in 2000. Canadians are accustomed to benign neglect from a neighbor preoccupied with more urgent global flashpoints, but since that neglect has grown so much as to be malign, they have begun to reappraise their relationship with the United States. As Canada develops closer ties with China and finds more receptive outlets for its exports, the United States may find itself with a less obliging partner to the north.
The Keystone XL pipeline will probably be approved eventually -- the economic consequences of not building it are simply too great -- but it will take a long time to undo the damage its delay has done to U.S.-Canadian relations. Obama’s mishandling of an ordinarily routine pipeline permit awakened Canadians to the problems with depending exclusively on the United States as an export market. Already, Ottawa has shifted toward alternative options that include exporting oil from the west and east coasts of Canada later this decade. To that end, the Harper government introduced legislation that will speed regulatory approval of such projects.
In May 1961, U.S. President John F. Kennedy gave a speech before the Canadian parliament in which he celebrated the deep ties between the United States and Canada. “Geography has made us neighbors, history has made us friends, economics has made us partners, and necessity has made us allies,” he said. What Kennedy stated then is still true today, and the two countries, linked by shared values and a network of individual contacts, will continue to cooperate for their mutual security and prosperity. Yet none of the truths he listed should excuse neglect. Even relations between close allies require constant care. And when the world’s most powerful country allows narrow political considerations to trample the high-priority interests of its immediate neighbor, it raises questions not only about its ability to maintain an entrenched alliance but also about its capacity for steady global leadership.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."