Politicians must convince Canadians that trade deals pass jobless sniff test: Don Pittis

As Canada and the world struggle with an unemployment problem, something seems to have gone wrong with the free trade model. 

The conventional economic wisdom is that freer trade leads to greater global efficiency and thus to general prosperity. But the Brexit vote and rising anti-trade rhetoric from U.S. presidential candidate Donald Trump are a warning to Canadian free traders that more globalization is useless unless it creates more and better Canadian jobs.

• Canada's trade deficit for May remains near record levels
• Building permits tick down by 1.9% in May

"They are losing their trust in politicians' ability to act in their best interests," said OECD Secretary General Angel Gurría in a speech yesterday on the concerns of the jobless and underemployed.

In their Thursday report, the OECD Employment Outlook, the rich countries think-tank warns that the world is still suffering from a shortage of good jobs.

Good jobs needed

As jobs numbers come out today in Canada and the U.S., job hunters and economists will be watching to see if the industrial regions of the economy continue to crank out jobs. As it turns out, job growth was flat, but the jobless rate ticked down to 6.8 per cent as fewer people were looking for work.

• Canada adds a surprise 14,000 jobs in May
• B.C. tourism industry sees 18% increase in tourists so far this year

All things being equal, a lower jobless rate would be reason for celebration. But the OECD says that despite Canada`s falling unemployment rate, more jobs have not led to the return to wage levels seen nine years ago. 

Not only have employment levels failed to bounce back to pre-recession levels across the OECD, but there are signs that the quality of the jobs that do exist are falling, especially for young people and women.

 

"Most people don't feel that they are doing as well as they were before the crisis," says Gurria. "They worry about unstable employment and poor job quality."

As Canadian politicians hammer out an inter-provincial free trade deal and International Trade Minister Chrystia Freeland pushes for freer trade with Europe, Canadians are waiting for signs that such deals really do help create good jobs.

The free trade theory is clear. When each country and region does what they do best, the entire world functions more efficiently, producing more goods and services with the same amount of labour. But as Brexit voters and Trump supporters have complained, that theoretical globalized efficiency does not necessarily translate into more and better jobs at home.

Maybe the business definition of efficiency just means fewer jobs at lower pay. Free traders must convince us otherwise.

Turning against trade

Even Democratic presidential candidate Hillary Clinton has turned against Tran-Pacific Partnership and other "bad trade deals," echoing Trump, who recently said "Globalization has made the financial elite who donate to politicians very, very wealthy ... but it has left millions of our workers with nothing but poverty and heartache."

As with all real world experiments, it is hard to prove whether free trade has made us better off. Would the Canadian economy have been more or less efficient if Bombardier had made the parts for Toronto's street cars with Canadian workers? 

The latest figures released earlier this week show that Canada's trade deficit is growing worse, hovering near record levels. And that cannot be blamed on the Fort McMurray fire as energy exports rose despite the blaze. Instead, poor exports are almost entirely due to a failed recovery in industrial manufacturing.

 

One senior economist called the trade report "very downbeat."

Can the loss of jobs in Canada's rust belt be laid at the feet of NAFTA and cheap labour in China, or is the Canadian economy merely going through a bad patch for other reasons?

Convincing argument

Business leaders remain the biggest champions of freer trade. However, critics of the TPP and the Canada-Europe trade agreement (CETA) say one of the biggest worries about those two deals is the power they give businesses to use the courts to overturn legislation made in the interest of ordinary Canadians.

As Trump leads the way toward another round of protectionism against Canadian exports, including forest products, it is the duty of our leaders to convince Canadians their free trade policy really is acting in the interests of everyone. And that means good jobs.

As labour ministers gather in Beijing next week to discuss the current global state of employment they must seriously think about how to make free trade compatible with job creation.

Because if Canadian voters — like the British and many Americans — begin to believe evidence that globalization has been bad for jobs so far, why would they want more of it?

Follow Don on Twitter @don_pittis

​More analysis by Don Pittis