Don't blame free trade. (effect of Canada-US Free Trade Agreement on Canadian economy)

About the author

Kip Beckman is a Senior Research Associate with the Canadian Tourism Research Institute, The Conference Board of Canada.

Recent job losses in manufacturing have been attributed to the Canada--U.S. trade agreement. But is the recession really to blame?

At the end of 1990, Canadian Labour Congress President Shirley Carr called the Canada-U.S. Free Trade Agreement (FTA) a "proven failure" and claimed that the Agreement had already resulted in 226,000 Canadians losing their jobs. Other groups, such as the Council of Canadians, have also stated that the FTA has been very damaging to the Canadian economy. These groups contend that the Agreement, which took effect january 1, 1989, has forced plants to close in record numbers and move production to the United States and the Mexican maquiladora. According to the critics, the FTA has resulted in a wave of takeovers and mergers, and corporate restructuring has swelled the ranks of the unemployed in Canada.

However, a closer examination of the economic record since the Agreement's inception indicates that free-trade critics are confusing the facts. They are blaming the FTA for job losses that are attributable to a variety of other economic circumstances, such as the recession. There is also evidence that the FTA, rather than hurting the economy, may have actually offset some of the damage that the recession has done to the Canadian economy to date.

What's happened to manufacturing jobs?

In the first quarter of 1989, 2.1 million Canadians were employed in Canada's manufacturing industry. By the first quarter of 1991, the Conference Board estimates that employment in manufacturing was 1.9 million. This represents a job loss of more than 200,000 over the two-year period. However, what free-trade critics fail to point out is that most of these layoffs occurred in 1990, after the recession took hold of the Canadian economy in the second quarter. In 1989, employment in manufacturing actually increased I per cent (see Table 1). Manufacturing employment fell by 5.9 per cent in 1990 and is projected to decline by 5.3 per cent in 1991.

The recession has resulted in reduced demand for manufactured goods, and this has forced employers to let some of their workers go. This phenomenon is certainly not unique to Canada. The recession …