After years of being treated like the U.S.’s poor cousin, Canada is increasingly demanding a place in the global spotlight.
Earlier this month, Canada said "no” to Anglo-Australian miner BHP Billiton’s $39 billion bid to buy fertilizer giant Potash Corp. of Saskatchewan—a move surprising for a country that’s approved nearly every foreign takeover for the past 25 years and one that some saw as an attempt to take better control of the country’s natural resources.
At the same time, Canadian politicians are aggressively campaigning for free trade, seeking out new markets and trying to lessen the country’s dependence on the U.S. Canada is pushing for a bigger presence in world affairs, particularly areas like banking and finance, where its track record is strong.
In the global-summit sweepstakes, Canada hosted June meetings of G-8 and G-20 leaders, where it used its position to push its views on banking regulation—just as it used the February Olympic Games for a show of patriotism and an ambitious drive to capture medals.
Edel Rodriguez
“When countries feel confident they tend to assert their national interests,” says Perry Spitznagel, vice-chair of law firm Bennett Jones LLP and organizer of a business forum last week titled “Canada Rising: Our Future as a Global Economic Leader.”
Down the road, experts say, Canada might use its newfound muscle in any number of ways, from demanding better treatment in trade deals with the U.S. to taking a leading role in the development of oil and other resources in the Arctic.
Some Canadians are even suggesting what would have been unthinkable just 15 years ago, when an editorial in The Wall Street Journal dubbed Canada an "honorary member of the Third World”; in many ways, Canada now stands to outshine its neighbor to the south.
"We don’t have to accept being second fiddle," says Brian Lee Crowley, managing director at the Macdonald-Laurier Institute, an Ottawa policy think tank, and lead author of "The Canadian Century—Moving Out of America’s Shadow," published in May. "We have the potential of enjoying a very long run of higher levels of economic dynamism, prosperity, success than the United States.”
O Really?
Perhaps, but as far as Canada has come, there are still obstacles to get past before it emerges fully from the shadow. The country is one of the smaller of the big global economies—the International Monetary Fund estimates it’s No. 9 this year, between Brazil and Russia—putting it at a disadvantage in terms of international heft. Canada also has consistently lagged behind peers in labor productivity, threatening to crimp future growth. It’s facing many of the same demographic challenges as other developed nations, with an aging population and ballooning costs for retirees and health care.
Edel Rodriguez
Governmental instability has hampered the country’s ability to tackle thorny problems. For the past six years, none of Canada’s four main parties has managed to get the support of a majority of the population. That has led to a succession of shaky minority governments and a national election almost every other year.
Canada’s global ambitions got a slap in October, when it was bested by Portugal in its quest for a temporary seat on the United Nations Security Council. During the past few months, the Canadian government has also feuded over airplane landing rights with the United Arab Emirates, which has thrown Canadian forces out of an air base and ended a policy of allowing Canadians into the country visa-free.
"We shouldn’t be immodest here,” says Janice Stein, director of the Munk School of Global Affairs at the University of Toronto. Because of Canada’s smaller size "we have to lead by example, rather than lead in the way that the U.S. and Europe can, which is to lead by the weight of who they are.”
Southern Exposure
Indeed, Canada’s economic fate is ultimately tied to that of the superpower next door, which has an economy and population roughly 10 times larger. Canada has only a handful of world-beating companies, and many of its most promising stars are gobbled up by bigger global players. Ambitious Canadians—from actors like Michael J. Fox to architects like Frank Gehry—tend to head south when they want to make it big.
The two countries have long been each others’ biggest trading partners, though the U.S. has always been more important to Canada than Canada to the U.S. Canada last year bought nearly 20% of what the U.S. exported, more than Mexico and China—the No. 2 and 3 buyers—combined. The U.S. in turn was the destination for nearly three-quarters of Canada’s exports. Around a quarter of that was oil and gas, making Canada the U.S.’s biggest foreign energy supplier.
In a reminder of how strong those economic ties remain, the Bank of Canada in October downgraded its outlook for growth this year by half a percentage point—in large part because of weakness in the U.S.
Canada is one of the U.S.’s closest military allies, too, though it parted ways on Vietnam and again on the invasion of Iraq in 2003. Yet Canadians say Americans aren’t always properly appreciative of that relationship—particularly when it comes to Afghanistan, where Canada’s military has been racking up high casualty rates in the dangerous Kandahar region.
Nature and Nurture
The case for those who say Canada’s star is on the rise starts with rocks and trees. Canada has a sizable manufacturing base and hefty financial-services industry, but it remains heavily commodities- and resource-oriented, with energy products, metals, minerals, timber and agricultural goods accounting for around half of its C$370 billion ($362.8 billion) in exports in 2009.
The U.S. has traditionally taken most of what Canada has to offer. But during the past few years, a number of new buyers with a voracious demand for resources—led by China—are starting to vie for Canada’s oil, gas and minerals, pushing up prices and boosting investments.
Two Chinese firms have announced investments in Canadian oil-sands projects in the first half of this year alone, raising China’s energy-deal volume with Canada to nearly $6 billion so far in 2010. That compares with $122 million for all of 2005, according to data tracker Dealogic. Experts say there’s a lot more to come.
"There’s going to be an explosion of Chinese investment in Canada,” says Derek Scissors, a research fellow at the Heritage Foundation in Washington, D.C., who tracks trends in Chinese mergers and acquisitions.
To build stronger business ties with other countries, Canada has embarked on what the government of Prime Minister Stephen Harper dubbed an "aggressive" free-trade agenda, lauding the economic benefits of open markets, urging international businesses to invest in the country and trumpeting its growing pile of free-trade agreements with countries from Panama and Colombia to Jordan.
Canada is trying to stake a claim to natural resources in another area that might prove vital in years to come: the Arctic. Countries from Russia to South Korea are increasingly interested in exploiting northern resources and developing a shipping channel through the Arctic Ocean, as rising temperatures make it more accessible. Canada has already claimed that Northwest Passage as domestic waters—though the claim is disputed by the U.S. And it’s trying to extend its mineral rights farther out into the Arctic Ocean. The country should try to put its stamp on how shipping and other Arctic battles play out, says Edward Greenspon, coordinator of a foreign-policy report published by the Canadian International Council earlier this year.
A Changing Relationship
More clout in the rest of the globe may give Canada more leverage in its talks with the U.S. Canadian manufacturers were particularly hard hit by "Buy American" provisions in the U.S. stimulus package, which prohibited projects from getting federal money to buy products made outside of the U.S.
The Canadian government was able to get most of the provisions waived for Canadian companies this year. Down the road, Canada’s leaders may make more demands—for instance, that America cut rules on food labeling that Canadian farmers find cumbersome, or ease shipping delays at the border due to increased security measures, foreign-affairs watchers say.
Beyond trade, other changes might be afoot in the relationship between the two nations. Canada’s strong banks and low corporate taxes could lure some businesses away from the U.S. and to Canadian urban centers like Toronto. Financial firms uneasy about onerous regulations in the U.S. may find Canada’s stability appealing; companies deciding where to locate research and development arms could be attracted by the investments Canada has made in its universities in recent years, even as many American academies have had to cut back.
“My hope is that people will rethink where they do their North American business from,” says Kevin Lynch, a former top-ranking civil servant who’s now vice-chair of the BMO Financial Group.
Good as Gold
Another Canadian strength—a hard-earned one—is the relative soundness of the country’s finances and currency.
Canada’s government spent much of the 30 years prior to 2000 in the red as the country invested heavily in health-care and welfare programs. The spending resulted in crippling budget deficits and a gross public debt that in 1995 surpassed the value of Canada’s GDP, according to statistics from the IMF.
The ballooning debt spooked investors and credit-rating agencies, leading to downgrades, a weak Canadian dollar, spiking interest rates and mutterings about capital flight and IMF bailouts. In response, Canada slashed expenditures and paid down debt, with the federal government in 1998 releasing its first balanced budget in nearly 30 years. By 2008, Canada’s debt-to-GDP ratio had fallen to 70%—around the same level as the U.S.’s, according to the IMF.
Canada’s fiscal austerity has helped the country keep debt levels relatively low, even after the financial crisis spurred additional spending to stimulate the economy. It has one of the lowest debt-to-GDP ratios in the G-7, and the only one that’s projected to fall over the next few years.
Pundits point out that in many ways the reforms of the past 15 years have reversed the roles of Canada and the U.S. Canada’s economy grew faster than its southern neighbor’s during the first two quarters of the year, and it’s watching the value of its currency rise, even as the greenback falls.
In addition, Canada’s six big banks escaped the financial crisis nearly unscathed due to a mix of strict regulation and conservative banking and borrowing practices. They faced fewer defaults and had less in loan losses than did lenders in the U.S. or Europe. Some have posted record profits during the past few quarters, even as peers south of the border struggle.
"Canada is attaining the rewards of fiscal responsibility," says Frank McKenna, a former Canadian ambassador to the U.S. who’s now deputy chairman at Toronto-Dominion Bank. "The U.S. is paying a price for profligacy."
Conservative but Brash
Canadian leaders are working hard to parlay that national prudence into international clout. Prime Minister Harper and his cabinet ministers are talking up the country’s banking prowess abroad, arguing that Canada’s track record ought to give it a greater say in matters of global financial regulation.
Earlier in the year, Canadian politicians led a fight against the idea of setting global standards for taxing lenders to stockpile funds in advance of a crisis, arguing that well-regulated banks don’t need such a system to keep them out of trouble. Canada’s resistance torpedoed the idea, and Canadian officials are lobbying for an alternative proposal, in which banks hold securities that can be converted to extra capital in a pinch.
The new Canadian assertiveness extends to the world of athletics, as well. At the Vancouver Winter Olympics in February, crowds decked in maple-leaf flags burst into renditions of "O Canada," and Games organizers were gauging the results of an audacious program dubbed Own the Podium. In previous Olympics, Canada’s athletes had only been exhorted to do their best. Own the Podium set a goal of winning as many as 35 medals—far more than Canada had ever won before.
Canada fell nine short of that. But it did get 14 golds, including the one that counted most: the top spot in men’s ice hockey, where Canada beat the U.S. in overtime.
"The world view on Canada was that we’re very meek, very quiet,” says Shane Koyczan, a slam poet whose ode to Canada, "We Are More,” was featured during the Olympics opening ceremony. "Canada is starting to embrace its identity and be proud of ourselves.”
Russia, the host of the 2014 Winter Games, is taking note. It’s now in talks to hire Canada’s Own the Podium consultants for itself.
Ms. Dvorak is a staff reporter of The Wall Street Journal in Toronto. She can be reached at phred.dvorak@wsj.com.
