Canada's Conservative government pledged on Thursday to become the first G20 country to permanently eliminate all import tariffs on inputs for manufacturers by 2015, and most cuts will take effect immediately.Very cool. With its big announcement, Canada joins several other countries - including Mexico, India and the United Kingdom - who have recognized the critical importance of imports to their economies and thus implemented government policies reducing barriers to foreign goods, services and investment. Good for them.
The tariff cuts on things like raw materials will save companies about C$300 million ($290 million) in a unilateral move that Ottawa sees as one of the boldest measures in its 2010 budget.
"Canada, as a nation whose prosperity is greatly dependent on trade, clearly understands the importance of open markets," the budget said....
The new measures will reduce the number of items subject to import duties ranging from 2 percent to 15.5 percent to 381 items from 1,541 items as of March 5, and that number will fall to zero by 2015.
At that time, the only imports subject to duties in Canada will be supply managed goods in the agricultural sector and consumer products.
The government said its pre-budget consultations showed that small and mid-sized businesses were enthusiastic about the tariff cuts, which will cut costs and paperwork.
Now granted, the new Canadian trade policies aren't perfect - as Terence Corcoran of Canada's National Post points out, it's both incongruous and unfair for the Harper government to help Canadian businesses with tariff cuts but not to extend the tax savings to Canada's consumers by also eliminating tariffs on farm and downstream products. Nevertheless, these tariff cuts should be loudly applauded for two big reasons. First, news of a major developed economy embracing unilateral tariff liberalization to help its domestic manufacturers will provide a very public counterweight to the traditional protectionist myth that foreign imports somehow harm industrial producers and jobs - especially as those companies become more successful. It also will allow everyday folks (who don't obsess about trade issues like me) to more easily see and understand how protectionism, not free trade, undermines domestic production and jobs. And as that happens, other tariffs - like those remaining ones in Canada - will inevitably fall (especially with guys like Corcoran loudly calling for their elimination).
Second, Canada's permanent(!) unilateral liberalization (and that of other countries) will stand as a constant reminder of free market sanity - one that dramatically undermines the mercantilist pabulum coming out of many governments these days, including Canada's southern neighbor, the United States. Just compare and contrast:
- The Harper government is eliminating import tariffs and lowering the corporate tax rate for the express purpose of increasing its domestic companies' productivity and global competitiveness, while...
- The Obama government's new trade agenda refuses to acknowledge that imports even exist, no less benefit domestic manufacturers (despite the mountains of statistical and anecdotal evidence that such imports are critical to US businesses, and that US tariffs hurt American families). Oh, and our corporate tax rate remains one of the highest in the world.