The Cutting Room Files, Part 3: The Future of Canada

Read the other installments in this series:
 
The CRF Files, Introduction
CRF Files, Part I: The Future of Korea
The Cutting Room Files, Part 2: The Future of Mexico
The Cutting Room Files, Part 4: The Future of Japan
The Cutting Room Files, Part 5: The Future of the United Kingdom
The Cutting Room Files, Part 6: The Future of China
The Cutting Room Files, Part 7: Europe
The Cutting Room Files, Part 8: American Politics

by Peter Zeihan and Michael N. Nayebi-Oskoui 

This piece is part of the Cutting Room Files, portions of the upcoming Disunited Nations text that were cut for length. Disunited Nations is available for pre-Order now on  Amazon.com, Harper Collins, and IndieBound.

Canada is… not a normal place.

Everything from its settlement patterns to its defense strategy to its national politics to its economic structure is wildly different not just from the United States, but from every other country on the globe. Until now that has not had an overly negative impact upon Canadian-American relations, but times are changing (and from the Canadian point of view, not for the better). To really understand recent shifts, we need to start not in Canada, but in Mexico.

It comes down to demography.

Mexico has a more-or-less standard demographic profile. Lots of children, a good number of young workers, fewer mature workers and very few retirees. Chart it out, children on the bottom and retirees on the top, and courtesy of simple mortality you get a pyramid.

For purposes of the North American market, there are two big takeaways here. First, Mexico is hungry. All those young workers having lots of kids means the country is a never-ending festive parade of spending on education and food and diapers and homes and cars. Second, Mexico isn’t all that skilled. This is less an indictment of Mexico’s educational system, and simply that people below age 40 don’t have all that much experience in their chosen professions. It makes Mexico excel at relatively low-value-added manufacturing and assembly, but the Mexicans are forced to leave the high-value-added stuff and design to others.

For the Americans, this makes Mexico the perfect complement. Its people are ravenous for American exports, the Mexican work force meshes nicely America’s more high-value-added workers, and for the most part the two countries do not compete head-to head. No wonder that Trump’s rhetoric on Mexico has evolved so strongly over the course of the past two years from issues of trade to issues of identity and migration.

Simply put, from American point of view, the Mexican demography is the demography of the perfect partner.

Canada’s is not.

Canada’s population bulge isn’t among the young workers who complement the American economic structure, but instead among the mature-worker demographic who compete. A demographic bulge in the 40-65 bracket means Canada is super-saturated with high-skill workers. This extra supply depresses the cost of skilled labor within the Canadian system, which has a similar impact upon the price of the goods the country’s skilled labor force produces.

Even worse, the lack of 20- and 30-something Canadians means Canada cannot even consume its own production. It must dump that production on foreign markets, and proximity alone means that some 75% of it goes to the United States. Economically, Canada isn’t a partner. It is a competitor, and that’s before one considers the Canadian tendency to subsidize industries as unrelated as dairy and aerospace and timber and electricity.

In a time when the Americans are pulling back from the global system and rewriting all their trade relationships, this alone would be cause for great concern in the Great White North. But the Canadian-American economic mismatch is only the first problem.

The second problem in Canadian-American relations is the Americans are having a change of heart about their northern neighbor not simply in economic terms, but overall.

When the Trump administration started its whole the-world-is-screwing-us-and-we’re-going-to-forcibly-renegotiate-all-trade-deals campaign, the Canadians took it as an opportunity to make demands of the United States. That clearly didn’t fit with TeamTrump’s understanding of what was supposed to be going on. Why in the world would the Canadians believe they have leverage over the government who controls the only market that matters to Canada, and global finance, energy and sea lanes to boot?

Canada’s confidence dates back to the Cold War. The flight path for the feared Soviet nuclear missile strike on the United States would have been over Canada. There was no version of American security that would not by default also guarantee Canadian security. The Canadians could have been security free-riders if they had chosen to, but to their credit they have fought and died alongside American soldiers in nearly every overseas endeavor the U.S. military has undertaken.

That does not mean the Canadians did not use their leverage, they just used it on issues of trade rather than security, leveraging their strategic position to gain concessions on market access for their products. The Canadians had a strong hand and they played it well. Repeatedly. Those trade victories were all folded into the original NAFTA accord back in the early 1990s.

It all fit with the times. The whole concept of the American-led global Order was that the Americans would create and subsidize a security and trade rubric to induce countries to join them in the fight against the Soviets. Guns-for-butter was the rule of the era. Canada’s position meant it had more to offer, and granting Ottawa some extra trade concessions for its cooperation was a price the Americans were eager to pay.

Times change.

Canadian negotiators resisted the Trump administration’s trade goals, thinking Canada’s leverage still existed. But with the Cold War over, the Americans no longer fear Russian attack. Canada is now just another country. Once the Americans had finalized NAFTA2 with Mexico, they turned to Canada and issued a simple ultimatum:

Mexico’s market is growing. Yours is not. Your market is protected. Mexico’s is not. The Mexican labor force is complementary to ours. Yours is not. We have a deal with the country that matters, and that isn’t you. We are leaving NAFTA. You know our terms. Take them or leave them. We are moving on.

In a single searing moment of revelation, everything that had guaranteed Canada leverage over America, everything that granted Canada a place in the world, everything that had generated any meaningful international influence, had evaporated. Canada capitulated within days and signed on for NAFTA2.

All things considered, as emotionally crushing and economically damaging as a forced rejiggering of Canadian-American relations will be, it could be (a lot) worse. Canada is very close to the top of a very short list of countries that the Americans have positive feelings for. Will the Canadian ego and economy suffer under NAFTA2? You betcha. But Canada will still enjoy privileged, security-risk-free access to the American market. In a post-Order world precious few countries can claim the same. Canada may limp, but it will still be able to walk.

Unless the third issue completely overturns the Canadian system from the inside.

Again, Canada is not a normal place. Unlike the United States where the states and federal government exercise roughly equal amounts of power, in Canada the provinces are preeminent and often have the ability to block federal policies they do not like. The country didn’t even get its first comprehensive internal free trade agreement until 2017.

As such, the provinces of Canada function less like components of a common country, and more like a loose clutch of independent countries which compete – oftentimes furiously. That would be problematic enough if the provinces shared a common demographic base. That, they do not.

Quebec is as vitriolically Francophone as the Maritimes are Anglophone. A huge chunk of the population of Toronto is South Asian, while East Asians tend to be overrepresented in Vancouver. The Prairies are as white bread as America’s upper-Midwest. These splits at least partially explain the seemingly never-ending drama of Quebecois separatism, but it is the intersection of demography and economics where the real problems erupt:

The Maritimes’ economies crashed decades ago and its subsequent “recovery” has been anemic at best. Now those provinces have all aged into mass retirement making them de facto wards of the national government. Mighty Quebec is only a few years behind, and is making the transition to demographic basket case right now. Both British Colombia and Ontario are no more than five years behind Quebec. A big piece of the BC economy is serving as the gateway to Asia, and the Trump administration’s trade war is likely to enervate those links. Even worse, the NAFTA-integrated manufacturing and agriculture that makes Ontario and Quebec hum were sectors that specifically benefited from NAFTA1, and which now face far steeper competition from the United States and Mexico under NAFTA2. More specifically, Quebec’s aerospace company, Bombardier, is both one of the most heavily subsidized in the world and is linked into Airbus – a firm that is both the target of extensive American tariffs and one whose fate is locked up in the Brexit drama.

Functionally, that restricts economic dynamism to the demographically young provinces of Alberta and Saskatchewan, a pair of entities whose economies depend upon old-school oil and natural gas production. For years now, funds transfers from the pair – quintuply so from Alberta – to the center is what has enabled Canada to enjoy its much-lauded social welfare state.

That’s not the end of the story, but instead just the beginning.

Canada’s leader is one Justin Trudeau, a scion of a powerful family. Justin’s father, Pierre, was a force of nature. Love him or hate him, everyone acknowledged that Trudeau the Senior was a commensurate politician. Dude could work a room, and it isn’t much of a surprise that he served as Canada’s prime minister for 16 years.

Justin, in comparison, isn’t a particularly smooth operator. His rise to the prime minister’s chair five years ago largely occurred because of circumstance. Many Canadians had tired of a decade of conservative minority rule under the somewhat curmudgeonly Stephen Harper. A coalition of liberal players banded together around the Trudeau name and managed to carry an election.

In that environment, Trudeau the Younger fit the bill. He isn’t very bright, his French is on the weak side, his past work experience was at best mediocre, but he is young and so very very pretty. In a world of social media and an increasing split between modern liberal values and traditional economic sectors, that proved enough.

Under Justin Trudeau’s rule Canada has… gotten by. There have been no disasters, but few serious new policies. Really, Justin Trudeau’s administration has only shifted two things.

First, it has steadily centralized power in Ottawa, making it easier to drain cash from Alberta and Saskatchewan both to balance out the slipping economic performance of the rest of the country, and to push this or that pet policy. Second, the pet policy of the moment is a fairly aggressive environmental program that has proven popular with Justin Trudeau’s base. That program has put ever-more-stringent restrictions on the economies of Alberta and Saskatchewan – specifically on the sectors that make the Canadian national budget possible.

Justin Trudeau’s lackluster performance has cost him. His Liberal Party has been ejected from parliaments in Alberta, Saskatchewan, Ontario and some of the Maritimes in favor of the conservatives; in BC in favor of the left-leaning NDP and Greens; and in Quebec in favor of more nationalist sentiments who are furious with his capitulation to the Americans in NAFTA2.

Within the Liberals, the future isn’t all that bright either. Aside from the Trudeau name, the one characteristic that Justin inherited from his father is the charisma necessary to suck all the air out of the room. Justin is such a big presence that there is no next-generation of young leaders working their way up through the Liberal Party ranks. When Justin falls, so too will the party.

Fast forward to this week.

The Canadians voted in national elections October 21. Justin Trudeau’s Liberals were not exactly gutted, but they lost a lot of seats ending up with just 157, thirteen shy of what’s necessary to form a majority government. That will force the Liberals to rely upon support from the Greens (whose primary concerns are climate change policies) and the NDP (who are like a more math-challenged version of the Greens).

For Canada as a whole, this courts disaster.

Political sentiment in Alberta and Saskatchewan turned sharply anti-Green and anti-Trudeau years ago. The Albertans and Saskatchewanians assert the Greens, the NDP and the Trudeau government are actively conspiring to stymie any and all efforts to get Albertan and Saskatchewan energy exports to the wider world. The Greens and NDP openly say they do, with anti-Albertan policies in the one province they control – British Colombia – having reached the point that BC and Alberta have a hot little inter-provincial trade war going. The Trudeau government attempts to be at least a bit circumspect on the issue, but under Justin Trudeau’s rule construction has yet to begin on a single cross-province pipeline.

Legally, there is an excruciatingly painful route forward. Quebec’s on-again, off-again independence spasms firmly established that Canadian provinces have the right to leave Canada. Paths to secession have been approved – at least in theory – by both the Canadian parliament and the Canadian Supreme Court. We are approaching the witching hour.

There is no modern Canada without Albertan and Saskatchewan financial strength, and there is no Albertan and Saskatchewan financial strength without the two provinces’ energy sectors. Now, with the Liberals needing Green/NDP support to rule, the already-deep political split is taking on more ideological, more hostile overtones.

The vote breakdown is not encouraging. In Monday’s elections the Liberals lost every seat they previously held in both Alberta and Saskatchewan. In an echo of America’s 2016 presidential elections, the opposition Conservatives actually won the popular vote, but because of Canada’s equivalent of America’s electoral college they earned 25 fewer seats than the Liberals. Further mirroring America’s more recent political evolutions, Justin Trudeau claimed a “clear mandate” for stricter climate-change-related policies – an assertion positively Trumpian in its ability to creatively reinterpret the facts on the ground.

We are likely to see two things over the course of 2020.

First, the new federal political alignments are the absolute worst-case scenario for Alberta and Saskatchewan. They have already tried and failed – horribly – to renegotiate their financial relationship with Ottawa, and now they can look forward to ever harsher restrictions on their economic capacity paired with ever more robust siphoning of their wealth to the Canadian center. The formal, open, public debate on secession begins now.

Second, the Americans are likely to take both notice and action.

In the War of 1812 Canadian colonials burned down the American capital. In the war’s aftermath, realizing the Americans would be jonesing for revenge, the Canadians carried out what has arguably been the most successful rebranding effort in history, from trigger-happy arsonists to polite, cuddly socialists.

That effort enabled Canada to avoid American wrath. Later, Canada maintained a bit of protection due to its status as part of the British Empire. In the interwar period the U.S. had bigger fish to fry at home, what with the Great Depression and all. Post-World War II the Americans’ need to maintain the global Order meant that Canada, for all its inconsistencies, was under American protection – which included protection from America.

The Canadian system is splitting along provincial, economic, demographic and ideological lines, and there is no one in the Trump administration who likes Justin Trudeau personally, ideologically or politically. Add in a now-unrestrained America, an America who sees Canada as a competitor, an America who sees the Canadian government as a mix of annoying and ungrateful and self-righteous, and a complete role-reversal is fully in play. Unless the Canadians can get their shit together, it will be eeeeeeasy for Washington to start cutting deals with individual Canadian provinces to hammer preexisting wedges ever-deeper into the Canadian system.

Alberta has the means and motive to destroy Canada. Washington has the means and motive to destroy Canada. And the likely format of the new Trudeau government is providing the opportunity.

Alberta’s Tryst With Destiny

By Peter Zeihan and Michael N. Nayebi-Oskoui

Local politics, even at the national level, are rarely a focus for students of geopolitics. Personalities play too big a role in the mishmash while local outcomes often play too small a role globally. Local affairs take up an outsized amount of oxygen in terms of local media coverage and public opinion, yet things usually keep chugging along, be the results good, bad or indifferent.

The key word there being “usually”.

The Canadian province of Alberta held elections yesterday (April 16) that have been on our radar for three years, and the implications of their results are anything but usual.

Alberta is a quirky place. Strong economic growth, a robust energy sector, and center-right political leanings have defined Albertan politics in recent decades—trends broadly disconnected from the reputation and reality of the rest of America’s northern neighbor.

Within that disconnect lies the problem.

Alberta has long been the Canadian province suffering from the largest “gap” between the monies it pays into national coffers compared to what it gets back in terms of federal spending. The rest of Canada has shown its appreciation by consistently stymying the energy industry that forms the backbone of the Albertan economy with everything from carbon taxes to blocking transport routes for the landlocked province’s crude to reach foreign refineries. For the most part, the rest of Canada doesn’t even use Alberta’s crude themselves, deigning to invest in refineries capable of processing Alberta’s tar sands crude, opting instead for lighter, sweeter imports.

If you think hamstringing a region’s economic growth while depending on its tax payments is a less-than-tenable long-term strategy, you’re not alone. While more people are aware of Quebec’s…independent streak, plenty within the Albertan political mainstream have had enough. And thanks to Quebec’s long-standing political wrangling to wrench itself free, any future Albertan separatist referendum would be perfectly legal.

Which gets us to the current state of play. The province’s conservative-leaning voters staunchly backed the Progressive Conservative majority governments from 1971 to 2014, to the degree that after some elections there wasn’t even an opposition in the local legislature. But in 2015 in-fighting within the conservative house generated a political split. The Wildrose Party ran separate from the Progressive-Conservatives in the 2015 elections on a ticket of fiscal conservatism, healthcare reform and direct election of the province’s senators. The fissure split the conservative vote down the middle, enabling the New Democratic Party—a party that is most definitely not of the center-right—to seize control of the Albertan government for the first time.

In a near textbook example of how geopolitics forms politics rather than the other way around, the NDP and premier Rachel Notley quickly went to work not only adopting many of its predecessor conservative government’s policies, but went to the mats with both Canadian Prime Minister Justin Trudeau and neighboring British Columbia over all things energy-related, most notably on pipelines. (Obviously, going to the mats here is relative. For a self-styled, Green/Leftist party to support oil sands in any measure is a big shift. Notley went so far as to embargo British Columbian products.)

It was fun while it lasted. Just as a political spat among the center-right brought the NDP to power, a recent fracturing of the center-left in Alberta combined with a healing of the rift on the right has now escorted it out. While the counting continues, it appears a reunited Conservative-Wildrose alliance—operating under the banner of United Conservatives—now hold at least 62 seats in the 87 seat parliament according to Tuesday night’s provisional results. With victory cemented, many Albertans now look forward to a fundamental shift in the provinces’ fortunes.

The awakening will be a rude one.

The United Conservatives are running on public dissatisfaction against carbon taxes, a lack of pipelines, and an unequal system of taxation by a federal government many Albertans see as being not only out of touch and unhelpful but actively working against Albertan interests.

Alberta’s new government will take the issue of a carbon tax to court.

They will lose. Canada’s provinces lack the legal standing to challenge the central government on such topics, or more accurately, Ottawa has means of enforcement that bypass legal challenges.

Alberta’s new government will sue to allow the Trans Mountain Pipeline to cross British Columbia and so enable Albertan Tar Sands to reach the Pacific.

They will lose. Even if Alberta wins the case, BC will still find a means—with the unofficial blessing of a green-leaning central government—of preventing the pipe’s construction.

Alberta’s new government will push back against the federal government’s heavy reach into Albertan coffers.

They will lose. With Canada’s population aging into mass retirement, transfers from Alberta to the center will increase.

Alberta’s new government will attempt to redefine the relationship between Edmonton and Ottawa in an effort to carve out more policy and financial autonomy.

They will lose. Trudeau’s shiny, Instagram-able veneer aside, his ruling Liberal Party faces what is shaping up to be horrific national election in October. Collapsed positions vis-à-vis the Americans on trade has gutted Liberal support in Quebec, British Colombia has outflanked Trudeau to the left, Alberta’s Prairie Province neighbors have never been strong Liberal territory, and Ontario is slipping into a decidedly non-leftist populism. Trudeau needs Alberta’s tax dollars to hold Canada together, and any concessions to Alberta would immediately be demanded by other provinces. What Alberta is asking for is quite literally an end of Canada. Even if Trudeau wanted to give ground (and he does not), he absolutely cannot.

Something’s gotta give.

This Alberta Question has two possible outcomes.

The first is an Albertan collapse.

Economically, the province’s strength is resource extraction. Without a significant change in how Canada functions, the Albertans inability to bring their crude to market leaves them staring down an economic depression Greek in depth while also facing ever higher financial extractions from Ottawa. It is enough to hollow out Calgary on the scale of Detroit. As a government town, Edmonton wouldn’t do much better.

Politically, Alberta’s United Conservatives face an impending litany of defeats on absolutely every issue that they say matter to them. Barring impossible shifts in Ottawa’s position, a repeat of the sort of infighting which brought the NDP to power in 2015 is all but guaranteed.

All that needs to occur to guarantee the rudderless and hopeless outcomes of this option is that the Albertans continue to do what they’ve done for the past decade: hope things get better and hope what they say matters.

Outcome Two requires a sharp break with convention, as it is nothing less than Albertan secession.

The logic of Alberta leaving Canada is difficult to deny. If the rest of Canada remains hellbent on cramping the Albertans’ style, why not quit the Canada Show? Alberta isn’t dependent on the federal government’s financial handouts like other provinces. It has an energy sector, public infrastructure, educational system and workforce that has drawn plenty of international investment interest on its own. Negotiating export pipelines directly with the United States would be infinitely easier than with other Canadian governments, especially since the U.S. Gulf Coast is home to the only concentration of refineries in the world that can process Albertan heavy crudes. The money the Albertan government would save by not having to underwrite the rest of Canada would be gob-smacking.

But just because secession solves a bunch of problems doesn’t mean the Albertans are chomping at the bit to make it happen. No one in the Albertan public space is using the “S” word just yet. None of the major parties campaigned on separation, either in 2015 or 2019, but that doesn’t mean that the topic isn’t about to dominate provincial political discussions.

The United Conservatives now face a truly weird combination of factors: a complete lack of ability to get anything they want from within the Canadian system, and the utter ability to leave that system. It isn’t that anyone in power in Edmonton is agitating for independence, but it will become obvious very soon that discussions of and processes towards independence are the only thing Albertans are actually in charge of.

We’ll save the implications of at-this-point-still-theoretical Albertan independence for another time. Even if the incoming Albertan government were dead-set on a secession referendum—and they are not—simply going through the motions to achieve that end will take a few months.

But as a teaser consider that Alberta by itself is the world’s fifth-largest oil producer, Canada is the tenth-largest economy, and the bilateral American-Canadian bilateral trade relationship has been the world’s largest for the bulk of the past two generations. One way or another, all things Canadian are now firmly on our radar, reaching up to the level of importance of the Saudi-Iranian rivalry, the ongoing Japanese and Russian resurgences, and the pending European and Chinese disintegrations.

For Canadians everywhere, that alone should be terrifying.

Trade Talk, Part I of II: Oh Canada, What the Hell is Going On?

In the late hours of September 30 a small bevy of leaks indicated Canada and the United States agreed to terms that will allow Canada to remain in the newest iteration of both countries’ premier trade relationship: the North American Free Trade Agreement. In the wee hours of October 1, said rumors were confirmed and fleshed out by both governments.

It has been a long road. Ronald Reagan initiated the process, George HW Bush finished the negotiations, Bill Clinton got the deal ratified, and George W Bush bridged the NAFTA relationship to North American security issues. Donald Trump has railed against NAFTA since the very beginning, and three decades later he made the abandonment and/or forcible renegotiation of every trade deal on the books a key piece of his presidential campaign.

The part of the American business community that depends upon international manufactures trade is hugely relieved – Canada and Mexico comprise about one-third of the total American trade portfolio. Simply walking away from NAFTA, as Trump often threatened, would have at a minimum triggered a Texas-centric American recession. Now businesses can look forward to revised rules-of-origin, agricultural access and dispute-resolution systems expressly modified to benefit American entities.

Overall changes to the trade pact are on the minor side: tweaks to dispute resolution mechanisms, increased requirements for local content in automobiles, improved access for digital firms both in the cloud and on the ground, minimum wage levels for some manufactured goods, greater access for U.S. agricultural products, and improved protection for intellectual property – particularly for pharmaceuticals. Overall, it’s a change in less than 5% of the original deal with most of the changes simply being updates to reflect the fact that it isn’t the 1980’s anymore.

Of course, this is not over. Completing the negotiations is a required step of critical importance, but now we get to deal with the fun and games of a trinational political ratification. In the United States, Trump will need to get the new NAFTA through the post-midterms Senate. In Mexico, outgoing President Enrique Peña Nieto will sign the deal on his last day in office, but it will be up to populist greenhorn Andres Manuel Lopez Obradorto get the text ratified and operationalized. Any number of things in either in-flux country and with either moody leader could still go horribly, terribly typical and wreck the whole thing.

But the most interesting developments might well be up in the Great White North.

First, the backstory of how Canada fits in to American-led trade deals.

The core of the American grand strategy during the Cold war was very butter-for-guns. The Americans would create a global Order to indirectly subsidize everyone’s economies, and in exchange the allies would grant the Americans broad control of their security policies so the Americans could fight the Cold War without having to refer everything to committee. That’s the core tenant of the American relationship with everyone from London to Paris to Berlin to Rome to Tokyo to Seoul to Canberra (and even Beijing).

But not for Ottawa.

That’s because the Canadian educational system is sufficiently strong that Canadians can read a map. They know that no matter what the Americans do to defend themselves, there is no version of American security so limp that it does not also require the defense of Canada. Add in a cultural, economic and political understanding of Americans matched by no one else on Earth, and throughout the Cold War and post-Cold War periods Ottawa has always been able to turn an inch into a yard when dealing with Washington. Perhaps the most obvious example of this is Chapter 19 of the NAFTA accords which established tribunals for arbitrating trade disputes between American and Canadian firms. This chapter was negotiated by Reagan – hardly a president noted for the willy-nilly waiving away of American sovereignty or autonomy.

Québec City, Québec, Canada

Ok, with that set up, let’s now dive into the Game-of-Thrones-with-a-Smile-eh world of internal Canadian politics. Folks, stick with me here. Canada is a bit bizarre.

There are three types of democratic political systems. The first is unitary where the capital city is large and in charge: France, the Netherlands, Argentina, Japan, Korea, New Zealand, Sweden. The second is federal. The powers of governance are balanced among local, regional and national authorities: the United States, Germany, Australia, Mexico, India.

The third is confederal: where the provinces have far more power than the national authorities on most issues. Confederal systems are of sort messed up because on most issues the individual provinces hold veto power over most issues. In confederal systems, change comes veeeeeeeeeeeeeeeeeeeery slooooooooooooooowly: Switzerland (which only granted women the vote at the national level in 1991) and Canada (which only signed a comprehensive internal free trade agreement in 2017).

That’s strange even before you mate it to the Canadian ethnic divide.

Way back when, both Canada and the United States used to be British colonial possessions. But other European powers held North American colonies as well, and in 1754 British-French tensions boiled up into a decade long conflict we know as the French and Indian War. In that conflict the French were roundly defeated by a combined force of British Redcoats, Canadian colonists, the Iroquois Confederation and Yankee Doodles led by one George Washington.

The terms of the post-war settlement handed control over several French possessions – what we know today as Quebec – to the British. Because the British decided they didn’t want to kill the French who were already there or fight a war of occupation, they granted the French colonials broad economic, cultural and linguistic autonomy: the Quebecois were born. About a century later when the British started incrementally granting their Canadian colonies independence, Quebec was tossed in with the Anglo provinces – British-granted autonomy and all.

Bam! Canada is a bi-lingual, bi-national confederation.

One of many outcomes of this is the Quebecois have the ability to veto all kinds of things at the national level. It also means that what seem to be irrelevant, even petty, topics at the provincial level tend to shape Canada’s national and even international policies. Policies like trade. For example, Quebec maintains one of the most inefficient, coddled, expensive, low-quality dairy industries in the world – and Quebec’s ability to shape national policy has enabled it to shape trade policy with the United States to protect Quebecois dairy.

The new NAFTA text takes direct aim at that industry, hardwiring in a tripling of U.S. dairy access to the Canadian market as well as changing protein standards for dairy products, a technical tweak highly likely to increase American access even further. Quebecois farmers are, unshockingly, apoplectic and are threatening political consequences.

It isn’t an empty threat.

Canada’s Liberal Party thinks of itself as the “natural” ruling party of Canada. It is in some serious trouble. Let’s start with its leader.

Prime Minister Justin Trudeau still may be a cool-sock-wearing liberal heartthrob on the global stage, but the shine has most certainly come off back at home. No one ever thought Trudeau was very bright. A cadre of liberal technocrats maneuvered him into power largely to ride the name recognition. I don’t mean this as a condemnation. The technocrats are doing a better job than their equivalents in most other Western countries, and if in a confederal system all you need a prime minister for is to kiss some babies, flash some smiles and cut some ribbons, the younger Trudeau is a fine choice. But his lack of foresight, political skills and leadership has costs, and technocratic cabinets aren’t that great in times of extreme change.

Consider a person for whom I hold immense respect: Chrystia Freeland. She took over Canada’s foreign ministry ten days before Donald Trump became the U.S. president. She inherited the old Canadian foreign policy rulebook that detailed how to best exploit Canada’s position as a free-rider in the American-led global Order. She quickly discovered Donald Trump was not only serious about ending the Order and re-negotiating NAFTA, but that the American president thinks of Canada as a normal country that warrants no exceptions whatsoever on economic and security policy.

Freeland has spent most of the past two years trying to protect the old arrangements, to no avail. Because Canada is confederal, her hands were tied. She couldn’t offer concessions. And because Trudeau is a (fantastically well-coiffed) bobble-head, there was no leadership from the top as to how to deal with such radically changed circumstances. When Trump initialed a bilateral deal back in September with Mexico to proceed with NAFTA2 withoutCanada, Freeland realized she had to take drastic action for the good of the country. The result? Last week Freeland dropped her hardline stance, caved a bit, and got the best deal she thought she could.

So now we have several things moving at the same time.

First, the Liberal party is getting gutted politically. Earlier this year the Liberals were ejected from power in Ontario, Canada’s most populous province. On October 2 the Liberals of Quebec – the second-largest province – weren’t simply defeated, but gutted by Coalition Avenir Québec (Coalition for the Future of Quebec), a center-right party so new as to be wet behind the ears. In May 2019 Trudeau’s semi-ideological allies in Alberta, Canada’s richest province, are likely to be eradicated by a conservative/separatist alliance. It would be challenging for a strong leader to turn these sorts of defeats around for national elections in 2020. Justin Trudeau is not such a leader.

Second, Trudeau faces a more personal challenge. He is Quebecois ethnically, but he was raised in Ottawa. English is his first language. His French is comme ci comme ça. The Quebecois like having one of “their own” in charge, but only if he can deliver. The new NAFTA’s dairy rule combined with the fresh winds in provincial rulership have just denied him what gravitas he held in his “home” province.

Third, the Americans will not let up. Trump’s negotiating team – lead by one very wiley Robert Lighthizer – refused to lift America’s aluminum and steel tariffs in the rubric of the NAFTA re-negotiation. And they won’t until such time as the Canadians ratify the new treaty text.

Fourth, don’t forget Foreign Minister Freeland. Her personality is the work of the same character artisans which brought us Hillary Clinton and John Bolton. Professional, direct, competent, a bit schemy, and if you cross her she will cut you. But she’s still Canadian so most people think of her as mostly nice most of the time.

Freeland has just been forced by circumstance to take a strong leadership role and execute some seriously decisive actions – something her boss is broadly incapable of. If she wasn’t already thinking that perhaps her party needs a new leader and her country a new prime minister, she probably is now. And since she clawed her way from opposition backbencher to foreign minister in less than fifteen months, I’m going to go out on a limb and guess she has an idea of who might be right for the job.

I Think They Get It Now, Part Seven/Sept: Canada

Jump to other parts of this series: Intro, France, Germany, UK, Italy, and Japan.

Writing about Canada is a guilty pleasure for me. I find endless intellectual stimulation in delving into the particulars of a country that is so close – and yet somehow so far – in political and cultural norms to my own. I also find it highly entertaining at how offended my Canadian friends and colleagues are when I don’t talk about Canada… and how horrified they are when I do. (It’s one thing when this dumb Yank proves aware of Canada’s inner workings, and quite another when he highlights cracks in the façade of liberal Canadian perfection.)

Recent events have put the typically sleepy world of Canadian-American relations front and center. Canadian Prime Minister Justin Trudeau played host the G7 summit (which triggered this series). His team crafted an agenda for the summit, most of which American President Donald Trump found so superfluous that he came late and left early. Trudeau’s post-summit firm rejection of American trade tariffs (firm by Canadian standards, that is) so enraged Trump that Trudeau found himself the target of a presidential tweetstorm.

Terms like “dishonest” and “mistake” and “Canada will pay” peppered the airwaves. Trump’s trade advisor, Peter Navarro, went so far as to assert there was a “special place in hell” for Trudeau for his alleged baiting and switching of Canadian policy positions. (Navarro later recanted on his hell quote, although it was pretty clear his heart wasn’t in the apology).

Despite my glee that writing about Canada is fully topical, I get no joy from what I see coming down the pipe. The end of the global system is putting the existence of Canada into mortal danger. It all has to do with how the Canadians are attempting to manage the Trump administration.

First, let’s put Canada into the Bretton Woods context:

The United States set up the Bretton Woods system in order to fight the Cold War. The Americans traded global market access for security cooperation. It was a straightforward butter-for-guns swap.

As the Americans withdraw from maintaining the Bretton Woods system, all the structures they established – the WTO, NATO, free trade, freedom of the seas – are disintegrating. All the things that thrived in a world of open borders and wealth – the EU, the Chinese Communist Party, OPEC, globalized manufacturing supply chains – will crash and burn. Very few of these collapses will be clean. There will be chaos. There will be wars. Some will stay local. Some will span continents. A lot of B- and C-list countries will cease to be. Even a couple of the A-list face dissolution. Canada was a founding member of the Bretton Woods agreements, and Bretton Woods’ fall will impact Canada as well.

But Canada is different.

Global chaos has zero impact on domestic Canadian security. With the Cold War over, the Americans are freeing themselves of the responsibility of defending Europe from Russia on one side and from defending Japan, South Korea and Taiwan from China and North Korea on the other. (A particularly cold reading of the Eurasian situation suggests renewed conflicts on both of Eurasia’s ends might be good for the United States’ overall strategic position, but let’s leave that debate for another day.) Yet the Americans can never stop defending North America. Canada has the option of getting a free ride even if relations with Washington tank.

What about economics? Consider the rest of the world. When China or the EU beat the trade war drum, I find it kind of sad. Economic success in China and Europe has proven possible largely because of the economic concessions allowed and security environment imposed by the Americans. The Americans subsidize the global trade and security order in order to purchase the cooperation of the Bretton Woods allies, but the war the Americans needed the allies for ended three decades ago. The Americans no longer get much utility from the Order that makes everyone else’s systems possible. The Order’s end won’t cost the Americans much. Anti-American chest-beating may make good local political fodder, but anything that pisses off the Americans in general – or America’s thin-skinned leader in particular – just seems suicidal to me.

But Canada is different.

Canada has something other Bretton Woods members do not: leverage. Canada is directly adjacent to the United States. That means the Americans traded with the Canadians not only before Bretton Woods, but before the industrial revolution hit the North American continent. NAFTA is the only active trade deal the Americans have that was not a strategic swap of the Bretton Woods model.

That provides Canada a unique opening. Broadscale chaos in the global system will not overly harm the domestic American experience, but mild chaos in North America would. Unlike Japan or France or Italy or Germany or the United Kingdom, the Canadians have their claws into the American economy’s guts, giving Canada the option of hitting America where it hurts. When the Canadians talk reciprocal tariffs, it matters.

And the Canadians know what to do with that leverage, because Canada has something else the other Bretton Woods allies lack: insight.

Because Canada is different.

The bulk of the Canadian population lives within a couple hour drive of the U.S. border, massed on road and water infrastructure that admits Canadian citizens and commerce to the most densely populated American territories. Integration – economic, cultural, political – is guaranteed. Canadians and Americans are family. It’s a family where the Americans outnumber the Canadians nearly ten-to-one, but isn’t the younger, smaller sibling always the thoughtful, scrappy one?

Canadians might not always like what they see, but issue number one for any Canadian government is managing relations with their primary security, economic, trade, cultural, and political partner. America’s power and insulation from the wider world combined with the imbalance between Canada and America means the Americans can take a rather lazy approach to all things foreign. Canada’s lack of power and lack of insulation from the United States means the Canadians can never take bilateral Canadian-American relations for granted. And so Canada studies the United States more than the Americans study Russian, Chinese, Iranian, North Korean, Mexican, energy, trade, disarmament, military, and immigration issues combined. Canada knows the United States intimately, while the United States barely registers what’s going on north of its border. (The only country that even comes close to studying the United States as intently is Israel.)

In a time of global breakdown, all this security, leverage and insight has encouraged the Canadians to play hardball.

Canada’s foreign policy of late hasn’t seemed to be about protecting the global order, but is instead about wrecking it:
•   Canada is pursuing cases against the United States at the WTO that – should Canada win – actually hurt Canadian producers and exporters… but a win would prompt the Americans to abandon the WTO altogether.
•   Canada is one of only a scant handful of NATO countries that has made any effort to increase its military spending… but rather than spending on NATO programs, the assets it is building are for independent power projection.
•   Canada’s intransigence in NAFTA talks are likely to wreck the negotiations altogether… assuming the Trump administration in the United States and likely incoming López Obrador administration in Mexico don’t wreck them first.

The logic is as simple as it is dark:

If the global order does not collapse, Canada will have made itself the leader of the anti-Trump league of nations, reaping beaucoup gravitas for the country in general and for the Trudeau administration in particular. If the global order does collapse, the Canadians have a separate trade deal with the United States outside of NAFTA and the WTO, so Canada would be the only country of consequence to retain access to the world’s largest and most stable market as the world falls apart.

Such a scorched earth policy has almost a Trumpian feel to it, but delivered as it has been with panache, politeness and perfectly poised hair, the world in general and Americans in specific have interpreted Canada’s burn-it-all-down campaign as a hug offensive. (Say what you will about the Trudeau team, they know how to manage public relations!)

Canada’s hardball strategy is clever, but clever is not the same thing as smart. There is a very real risk that the Trudeau government’s America strategy puts the very existence of Canada in doubt.

In most places a single ethnic group forms in a specific location and forms a government to look after the interests of that people in that place. The people and their government then expand outwards until they control a large, rich and securable enough geography that they can become what we now call a nation-state. The English of England dominate Great Britain, the French of the Beauce dominate metropolitan France, the Japanese of the Seto Inland Sea dominate the Home Islands, and so on.

But Canada is different.

Canada is by far the least centralized of all the world’s operational countries. Canada is a settler state, colonized by a mix of different ethnicities in different places. The governments of settler states are far less centralized than those of the traditional nation-states, with a great deal of decision-making power reserved for regional and local governments.

It is a direct reflection of Canada’s geography. The northern four-fifths of Canada is tundra, taiga and the broken poor-soil, heavily-forested lakelands of the Canadian Shield. Its entire population exists like a sort of thin frosting on the southern border. But even this is broken up into disparate pieces.

Populated British Colombia, which is to say the city of Vancouver, is blocked by a 12-hour winding drive through the Canadian Rockies from the Prairie provinces. The Prairies are blocked by a 24-hour winding drive through the Canadian Shield from Ontario and Quebec, Quebec is blocked by a 10-hour winding drive through deep forest from Halifax, the largest city in the Maritimes (whose name gives away that you cannot drive to most of it). Each province has its own legislature which enjoys broad decision-making power almost over everything but foreign and defense affairs. Topics that are national policies in most countries as a matter of course tend to be devolved to the provincial level.

Much has been made – rightly – of how the cultural split between Anglophone Ontario and Francophone Quebec threatens Canada’s national coherence. The two provinces may have the bulk of Canada’s population, but starkly different economic management styles have generated starkly different economic structures – and it doesn’t help that Ontario’s window on the world is the St Lawrence Seaway… a waterway Quebec controls. Quebecois independence referendums have, repeatedly, threatened Canada with national dissolution.

But Quebec separatism is hardly the biggest threat to Canada these days. Ontario ultimately bought Quebecois loyalty to Canada by paying Quebec off. Fat financial transfers – largely funded by taxes on Ontarians – have kept the Quebecois fat and happy. But times are changing. Canada has the world’s second most distorted and fourth fastest-aging demographics. The Quebecois are on the cusp of mass retirement which means the state will need a lot more money to support a population that will no longer be working. But the Ontarians are but three years behind, meaning that Ontarians can no longer afford to pay the Quebecois to be part of Canada.

The two provinces have decided the solution is to jack up taxes on the remaining provinces to make up the difference. But citizens of the Maritimes and British Colombia are as old or older than the Quebecois and Ontarians. That leaves the tax burden on the Prairies, most notably on Alberta and Saskatchewan. In The Accidental Superpower I included a chapter titled “The Alberta Question” in which I detailed at length how the disconnects between Alberta and the rest of Canada threatened the country’s national coherence. I stand by that assessment, but now I see something more ominous.

The United States is a global power. As such it has a lot of brands in a lot of fires at any particular time. Canada may be America’s largest trading power, but the Americans haven’t viewed Canada as a security threat in nearly two centuries. Washington tends to allow American-Canadian disputes to slide down the to-do list. That, in part, is what has enabled the current Canadian government to take such a firm stance on trade issues. There’s a perfectly reasonable expectation that the Americans will get distracted by something shiny out there in the great wide world, and give in to Ottawa just to simplify things.

But something most Canadians miss is that while their proximity to and close relationship with the United States does indeed grant them security and leverage and insight, that’s only an advantage if the Americans are distracted.

End America’s position as the global leader. Take most of those irons out of the fire. Contract America’s already small international economic footprint. Washington’s to-do list shrinks immeasurably. Purely by circumstance, Canada moves up. Way up.

Canada faces very real danger of national fracture without American attention. But if the American population or presidency perceives – rightly or wrongly – that Canada is part of the problem rather than part of the solution, then the full power of the American system can be brought to bear on its politically, economically and strategically fragile neighbor.

Many Canadians think of Trump as a child, but there are soooo many weak points in the Canadian confederation it would be child’s play to pry it apart. Even without going for the jugulars of Albertan or Quebecois separatism, there are a host of options. Here’s a few:

  • Canada’s riven geography means every Canadian province trades more with the United States than with the rest of Canada. Canada only implemented their first comprehensive internal free trade agreement among the provinces last year. Granting preferential access to this or that province’s politically sensitive sector in exchange for monkeywrenching Ottawa would be painfully simple.
  • The Ontario-Quebec cultural split means Ontario gets more electricity and electricity inputs from the United States than it does from neighboring, hydropower-driven Quebec. That gives Washington the ability to jerk with energy supplies and/or tariffs to either benefit – or harm – Canada’s two core provinces.
  • Pipeline politics in Canada have forced Prairie producers to shunt nearly all their petroleum exports south to and through the United States rather than to their own country’s ports despite orders from the central government that new pipes should be routed through British Colombia. Carrot and/or stick options to benefit or slam Canada’s primary export moneymaker abound.
  • An environmental/petroleum spat between Alberta and British Colombia is forcing BC to get most of their refined products from the United States. Restricting and/or allowing such products to flow enable the Americans to take sides on what has become a blistering Canadian domestic argument.

The Maritimes survive on financial life support from Ottawa, a situation that can only persist so long as Ottawa has spare cash. Any number of tweaks of American policy could crimp the financial flow.As America’s global interests shrivel, Canada may be about to evolve from the country that the Americans are most likely to grant a pass to the one they are least likely to ignore.

After all, Canada is different.

A Missed Opportunity in Alberta

During post-presentation Q&A at an event last week, an acquaintance decided to have a bit of fun at my expense by slipping a question on Albertan separatism into the deck. Considering that the event was in Montreal and the audience was two-thirds Canadian, I’m sure said acquaintance considered the pot well-stirred. I made a few comments about how Canadians should take the issue of Albertan separatism seriously and moved on.

Within a few hours this graphic was waiting for me on-line.


Part of me finds it a bit sexy to be associated in any way with the word ‘provocateur’ and so is eager to engage on the topic. More of me dreads the hate mail I know I’ll get from diving in. And yet I now feel obliged to comment.

To be blunt, Canada is flirting with a national crisis. The signs are there for those who can check their preconceived notions at the door:

How about that the province of Alberta has been the only net contributor to Canada’s federal budget for several years running? Or that Alberta is the only province that isn’t aging into mass retirement, and therefore is the only province that will have the capacity to continue to pay in the future? Or that Alberta’s primary income stream — oil exports — are being actively stymied by local politics in a host of other provinces? Or that Alberta’s in-pay level to the federal budget has already been penciled in to fund the new Canadian government’s spending plans regardless of what happens to Alberta’s oil income? Or that the Edmonton-Ottawa funds transfers are already the greatest of their kind from any province to any central government in the modern world? Or that Canada can no longer maintain its standard of living without draining Alberta dry, or that Alberta cannot maintain its standard of living so long as it remains in Canada?

Separatist risks are not new in Canada, and in the past they’ve been handled fairly adroitly. Last century Ontario managed the Quebecois separatism threat by, in essence, paying Quebec to remain in Canada. It’s a variation of what the United States has done with my adopted state of Texas (a state as wealthy as Texas has little justification for gobbling up as many defense, infrastructure, health care and education funds from DC as it does). There’s just one problem: With Ontario aging into mass retirement, Ontario can no longer afford to fund Quebec’s inclusion. So the bill has been — quite nonchalantly — passed on to Alberta. Anywhere else in the world, artillery would have already been exchanged. But this isn’t anywhere in the world. This is Canada, and everyone is just so damned polite.

Thing is, as big as the financial gap is, that’s not what has me worried these days. Two new developments may be pushing the Albertans past the tipping point.

First, this is no longer about ‘right-wing Albertans’ in ‘left-wing Canada’. Albertan exasperation now spans the political spectrum. Even current Albertan Premier Rachel Notley — whose personal ideology tends to be distrustful of someone as conservative as Bernie Sanders — is sounding an awful lot like her Conservative predecessors on topics such as financial transfers and pipeline politics.

Second, the rest of Canada just had a serendipitous opportunity to nip Albertan separatism in the bud. Wildfires raging through the Fort McMurray region have forced some 100,000 Albertans from their homes in what is to my knowledge Canada’s costliest natural disaster. Considering Canadians’ well-deserved reputation for being charitable and caring in all things international, I expected to see a mass cross-country effort by Canadians to assist their own.

The reality has proven to be somewhat less … flattering. Social media has been abuzz with commentary that skirts the line of rude and hateful. The one that made me stop short was “Welcome to climate change, Alberta. Feel free to keep denying it.” For Americans, the least imperfect comparison would be if the rest of the country had heckled the citizens of New Orleans for their levee engineering skills while their city was drowning in the aftermath of 2005’s Hurricane Katrina.

Canadian Prime Minister Justin Trudeau didn’t improve matters last week when he made a quick day trip to Alberta for some photo-ops in and flyovers of deserted, smoldering urban areas. Visiting the area was a solid call, but not making time to actually press the flesh with the world’s largest group of first-world homeless was not. As an American who has been involved in all things political throughout the George W Bush and Barack Obama years, I recognize political tone deafness when I see it.

Bottom line? Albertans are coming to the conclusion that the rest of their countrymen just don’t care.

In a country where secession has been codified as legal by both parliament and the supreme court, I would think that this would be setting off alarm bells in Toronto and Quebec City. Instead, I’m continually stunned that most Canadians do not view Trudeau as either cold or off-base. In fact, every time I converse with Ontarians and Quebecois I walk away confused as to just how blasé they are as to the Albertans’ circumstances.

And so here I sit, accused of working towards the ‘destruction of Canada’. I’m afraid that with the way things are going, Ontario and Quebec are doing a bang-up job on that without any help from me. =[