AN ALTERNATIVE TO THE 51ST STATE

A SINGLE CANADA-US MARKET

Image from Luke Savage

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By Richard Bastien

According to the Fraser Institute, Canada had the third-lowest growth in per capita GDP among 30 advanced economies between 2014 and 2022. For the entire 2015-2024 decade, our GDP per capita grew by a pitiable 1.4%, the second-lowest growth rate of any OECD country.

As bad as that might seem, it’s not the worst part: the OECD now projects Canada to register the lowest economic growth among all OECD countries until at least 2060. And those projections are based on pre-Trump Tariff policies, which means that Canada, currently the laggard of the developed world, could become a Northern version of Venezuela. Adding to this dire view is a recent report from Horizons Policy Canada, allegedly “the Government of Canada’s center of excellence in foresight”. Titled Disruptions on the Horizons: 2024 Report, it suggests “that downward social mobility might become the norm in the future”.

Clearly, what we need is a new economic model. President Trump has proposed a political union whereby Canada would become the 51^st State, a proposal shunned by virtually all Canadians. Our political leaders, for their part, have proposed various ad hoc solutions, none of which offer real hope for the medium and long term.

What is surprising is that no one has yet proposed a true alternative to Trump’s idea of a 51^st State. Perhaps the time has come for our leaders to take some cues from recent European history. In 1984, as the European common market was experiencing slower growth than other OECD members, Prime Minister Thatcher had Lord Cockfield appointed Vice-President of the European Commission. A year later, Cockfield delivered a White Paper listing some 300 trade barriers that, he argued, had to be abolished in order to turn the “common market” into a genuine “single market”, that is, an economic zone based on the elimination of trade barriers between member countries, the adoption of a common external tariff, and the free movement of labor and capital across national borders. Such a market provides for more integration than a customs union, but less than a monetary union. It limits political sovereignty without abolishing it.

The White Paper eventually led to the adoption of the Single European Act, a treaty launched in 1993 that gave new impetus to the European Community. Over the following years, the treaty also allowed several Eastern European countries to tie their economic destiny to that of their Western counterparts and prosper economically.

A sensible alternative to the 51^st State idea would be something akin to what Lord Cockfield proposed to EC members in the 1980s, that is, the establishment of a single Canada-US market.

Such a move would lead to much greater economic and financial integration between the two countries. It would also be consistent with Canada’s economic history, which originated in Napoleon’s Continental Blockade of the early 1800s, forcing the UK to source the timber required for its Navy from Lower Canada. Thanks to preferential tariffs, timber became our biggest export to the British Isles. After 1867, our economy grew largely under the protection of the British Preference System. In the early 1900s, the Laurier government sought to achieve trade reciprocity with the U.S., which caused the Liberal Party’s election loss to the Borden Conservatives in 1911.

As it reached its 100^th anniversary as a sovereign State, Canada again initiated a process of continental integration, under the auspices of the 1965 Canada-US Auto Pact. This process was given a new impetus when the UK joined the European Community in 1973, a move that eventually led Canada to sign the Canada-United States Free Trade Agreement, launched in 1989 and then superseded by the 1994 North American Free Trade Agreement (NAFTA), which itself was replaced by the United States–Mexico–Canada Agreement (USMCA) in 2020.

All this means that Canada can develop and flourish only through greater continental integration. Since the USMCA is proving to be a source of increasing tensions with the US, it will require substantial changes whether we like it or not. Such changes can result in either less or more integration. Since there is nothing to gain and much to lose in less integration, we must seek further integration, that is, move toward a European-type single market.

This will naturally raise several contentious issues. For example, a single Canada-US market would likely require the abolition of Canada's agricultural supply management programs, which ensure a stable supply of certain food products by protecting domestic producers from low-priced imports. (One might note here that Australia dispensed with similar regimes at the turn of the century). Another contentious area would be the perceived need to foster and protect Canadian culture via government involvement in institutions such as the CBC-Radio-Canada and the National Film Board.

However, as attested by the experience of European countries, there can be no doubt that a single Canada-US market would result in economic gains far outweighing economic losses without jeopardizing Canada’s cultural identity.

Bringing about a single Canada-US market will require a carefully designed federal initiative supported by our two major national parties and by most provincial governments. This calls for both federal and provincial leaders to act as true statesmen (or statewomen).

Richard Bastien spent most of his career working as an economist in the Canadian Ministry of Finance, specializing in intergovernmental and international finance. He was Canada’s representative in the Paris Club and in the G-7 Group of debt experts throughout the 1990s.

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Thanks for reading. For more on this topic, read Making Sense of the Trade War

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