Weapons are to war as leverage is to negotiation.
When it comes to negotiation, it seems to me that either Canada is unarmed or doesn't know how to fight. I was reading the news today, Gordon Campbell treatening to restrict resource trade with the US. What took him so long to come to this conclusion?
Unfortunately, details in the news are scant interms of what resources he is going to restrict and how he is going to do it. Without knowing either one cannot tell whether if it is feasible or to do so or not. At this moment in time I am currently not interested in doing the research to see whether if Canada should make this move (I have other things to do). But the decisison making conditions should be apparent. As I will outline briefly.
Should Canada restrict trade of natural resources such as gas, oil, water, electricity and etc, economic damage to both economies needs to calculated. If damage to American industries are going to be significantly greater than to Canadian industries, then serious thought should be made to go through with this move while providing suitable compensation to local resource companies to reduce damage on our side.
Cutting US access to cheap resources and energy (which is why the US is trading with us I presume) should drive up prices in US markets or reduce profit margins for American companies (resources they acquire will become more expensive if they cannot get them from Canada).
Suppose the following situation. I will use wood as an example. Suppose that wood is sold to the US for $1 a piece. An hardware outlet purchases the wood for $1 and has a 200% markup, selling the wood for $2. Suppose that the wood is sold to construction companies and through their work the value of that wood increases by 400% and is sold to the consumer for $8.
Next presume that the US sells their own brand of wood for $1.2, assume that the same process occurs and the consumer purchases the finished product for $9.6. The value that Canadian lumber offers to the US economy in this case is $1.6. For every $1 that we don't sell the US loses $1.6. This is one form of leverage. The real factors are probably different, but the more processing our products go through in the American market, the more value they get out of it and hence price fluctuations at the lowest level (ie resource level) will be felt the most as it propagates through to the end product.
There are more factors at work here, suppose that Canada did severly restrict selling lumber to the US. Understanding "suppy and demand," that would cause lumber prices in the US to rise and the net result will be amplified to the consumer. By how much, that would be hard to predict, but the effect would be greater than the imaginary "$1.6" damage from the previous example. A much more detailed analysis is necessary to better understand the effects of Canadian trade on the US economy.
Now, to simply take the $1 as a loss is silly and what Gordon Campbell mentioned in the news release that Canada is looking for other countries to sell our resources to (ie China, etc) is to reduce the damage done to us for not trading with the US. This is a step in the correct direction.
Furthermore, the American lumber lobby groups supporting the trade dispute should be pressured. Motives of governments are based on demands made by strong lobby groups, since these lobby groups are the ones that support the government most strongly it is in the interest of the government to appease these groups. Going head on against the US government is not the key to resolving this issue, because it is quite evident that American based lumber lobby groups (whose names I cannot recall at the moment) want to keep Canadian competitve factors minimized in American markets.
The trick to solving this dispute is to apply pressure on these groups from within the US. The strategy I propose is for either the Canadian Government or lumber companies to appeal to people further down the lumber chain (people that use the lumber in construction and consumers) that they would be losing value by not buying cheaper Canadian lumber interms of reduced profit margins (from more expensive building materials) or increased price (which is passed on to the consumer). I personally believe that reduced profit margins will make the strongest incentive to encourage a dispute against lumber lobby groups from within. This is what exactly needed to weaken support for the softwood lumber dispute.
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