The Trade-Security Nexus: The New Reality in Canada-U.S. Economic Integration

...the relatively unrestricted mobility of capital between Canada and the United States has done more to integrate the economies of the two countries than any other factor except geography. (Aitken 1961,19) ...the further regional economic integration proceeds in other parts of the world the more vital will relations with Canada become for the national interests of the United States... [at the same time] If Canada wants the United States to do something she must be able to prove that it is in the interests of the United States to do it. (Aitken 1961,155-6) ********** Hugh Aitken said more than can be captured in the above quotes in his prescient book, American Capital and Canadian Resources, published more than four decades ago. He also noted the differences between the way integration was unfolding in North America and in Europe, the interrelationship between economic integration and continental defense, and the challenges the increasingly intimate relationship with the U.S. posed, and would continue to pose, for Canada (Aitken 1961, ch. 1). Aitken was describing a relationship that was the result of decisions of corporate and individual investors, not government policy (2) (though some U.S. government concerns such as security of supply of certain key commodities in the context of the Cold War did influence U.S. corporate investment in Canadian resources). The questions Aitken raised about the implications of Canada's growing economic ties with the U.S. remain at the center of the Canadian agenda. The immediate economic impact of closure of the border following the terrorist attacks on the U.S. on September 11, 2001, emphasized the differences in national priorities. For Canada the issue was and remains economic security, which translates into unimpeded access to the U.S. market for Canadian exports and imports. For the U.S. the issue was and continues to be homeland security, in which a secure border trumps economic connectedness with Canada and Canadian economic dependence. This article examines Canada-U.S. economic relations in light of the now critical connection between trade and security. It demonstrates the linkages between the two economies and the asymmetrical character of that relationship and argues that lack of attention to the linkage between trade and security could hinder the hitherto predictable cross-border movement of goods on which Canada's economic health has come to depend. The article begins with some discussion of two of the analytical prisms through which the bilateral relation ship has been understood. The second section outlines the origins of bilateral economic ties in the nineteenth century, and then in the third attempts to measure the extent of Canada-U.S. economic integration, with particular attention to trends since the implementation of Canada- U.S. Free Trade Agreement (CUSETA) in 1989 and the North American Free Trade Agreement (NAFTA) in 1994. This section of the paper also looks at business attitudes toward the relationship. The fourth part of the article quickly reviews impact of the September 11 terrorist attacks. The conclusion examines some of the factors shaping the environment in which the next stages in the relationship will unfold. 1. Analytical Perspectives on the Canada-U.S. Economic Relationship Two of the many analytical paradigms on Canada-U.S. relations inform this article. The first is the literature on economic integration, particularly the European experience, and the way in which, implicitly or explicitly, our understanding of what has occurred (and is occurring) in Europe shapes our analysis of the Canada-U.S. (and sometimes the Canada-U .S.-Mexico) relationship. The second is the Keohane and Nye conclusion about lack of issue linkage in the Canada-U.S. relationship, the idea that since World War II differences of views between the two-on-one issue in their relationship normally did not affect the outcome of bargaining on other unrelated matters (2001, 146-51). …

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