Unification Zeitgeist

Fast on the heels of Germany’s unification in 1990, Canadians watched many of the countries of Western Europe band their economies together with the euro. Closer to home, they joined with the United States and Mexico in 1994 to create a quasi-free trade zone under Nafta.

Historians could argue that a U.S.-Canada unification is really just a great homecoming. After all, some 80,000 loyalists to the Great Britain crown left for Canada after the Versailles Treaty recognized the United States as an independent nation in 1783. Their descendents would probably jump at the chance to renew claims on the land and businesses their forebears hastily left behind.

A more likely explanation, however, has little or nothing to do with this spirit of international cooperation. It is one of economic necessity — for both countries. By any standard, the U.S. and Canadian economies are thriving. But there are trouble signs, too.

In the United States, a decade-long economic boom has led to record-low unemployment. U.S. companies, especially in the high-tech sectors, are increasingly having to attract skilled workers from abroad. Meanwhile, it is even worse in Canada, where skilled workers are fleeing the country’s high income tax rates.

Between 1990 and 1996, more than 31,000 professionals and managers left Canada for greener pastures in the United States. Falling short of its annual target of 200,000 permanent immigrants in each of the last five years, Canada has not been able to replace the workers it is losing to the United States.

An even greater incentive for unification (if only for the United States) would seem to be in reducing the staggering U.S. trade deficit, which reached a record $358 billion in 1999. As its economy has boomed, the United States has satisfied its consumption binge by buying more from its trading partners, including Canada, than it sells to them. The bilateral deficits with Japan and China cause U.S. officials the most heartache, but the $64 billion trade deficit with Canada ranked close behind those countries.

By “internalizing” U.S.-Canada trade, the United States could reduce its overall trade deficit by $23 billion — a prospect that would surely have at least a few politicians in Washington in the pro-unification camp.

But if you take away Canada’s generous bilateral trade surplus with the United States, Canada starts to resemble its profligate neighbor to the south. Excluding the United States, Canada ran a $41 billion trade deficit with the United States last year. In other words, the merged country would probably still give its trade policy officials major headaches.

So even if out-and-out unification is not an economic panacea for the United States and Canada, it is clear that Canada’s economic fortunes are closely linked to those of the United States. More than 80% of Canadian trade takes place with the United States, and its central bank frequently shadows the actions of the U.S. Federal Reserve in setting policy for the Canadian dollar.

All things considered, it may simply not be practical for Canada and the United States to become one country. Despite the fact that nearly a third of Canadians think unification is likely, the countries remain far away from an actual political union. Even a euro-style monetary union is not yet on the radar screen. But for all intents and purposes, the United States and Canada have already achieved a unification of sorts — an economic one.