Trade drives provincial policies, but is Gordon Campbell looking in rear-view mirror by ignoring peak oil?

Free-trade proponents love to invoke 19th-century British economist David Ricardo's theory of comparative advantage.

It goes like this: if your country specializes in what you do best and encourages other countries to specialize in what they do best (or, perhaps least worst)—and these nations trade their goods—there will be more economic output than if there wasn't this specialization and trade.

The B.C. Liberal government has tried to position our province to be the beneficiary of growing transoceanic trade.

Part of this strategy is the Gateway Program, which is an unprecedented, multibillion-dollar road-building exercise that includes a new Port Mann Bridge, a widening of Highway 1, and a South Fraser Perimeter Road.

Agricultural land is being sacrificed for pavement and to create space for containers coming from China.

Metro Vancouver has previously reported the Ministry of Transportation and Infrastructure secured approximately 110 hectares of agricultural land for the South Fraser Perimeter Road and the Golden Ears Bridge projects.

According to the theory of comparative advantage, we can rely on people in other parts of the world to grow our food because they're better at this than we are. We'll just trade for more of it as we need it.

Hosting the Olympics was another way of living up to Ricardo's adage of pursuing what you do best. We have outstanding winter sports facilities in B.C., and the underlying assumption is that we will attract more winter-sport-loving tourists in the future by advertising these assets on the world stage during the Olympics. Or so the theory goes.

The $883-million expansion of the Vancouver convention centre should also be seen in this light. Promoters of the project assume that people in the 21st century will still want to travel halfway across the continent or the globe to meet face-to-face in a luxurious waterfront facility because we have one of the best waterfronts in the world. Why not exploit it?

The B.C. government also encouraged the creation of a $2-billion north-south Canada Line to the airport ahead of an east-west rapid-transit route, assuming that the airport will continue to grow as an economic hub. That's all because of trade and tourism (and don't forget that tourism is really a form of trade because it brings money into the country).

Yet another manifestation of the belief in comparative advantage is the harmonized sales tax, which will transfer approximately $2 billion in consumption taxes from businesses to individuals.

We're already pretty good at cutting down trees and digging minerals out of the earth. Premier Gordon Campbell might be thinking, "Why not offer companies that do this an opportunity to maximize their comparative advantage?"

But Ricardo never had to deal with climate change and peak oil, which both have the potential to seriously undermine international trade and tourism.

Jeff Rubin, a former chief economist with CIBC World Markets, told the Georgia Straight last year that rising world oil prices will shrink transoceanic trade and stimulate more regional trade.

Climate-change scientists say that global warming will expand deserts away from the equator and into some of the most fertile, food-producing areas on the planet. This might explain why we're hearing about so many large fires in places like Greece, Portugal, Spain, and Australia.

This weekend, China reported its first trade deficit in six years. According to Xinhua News Agency, the country posted a $7.24 billion trade deficit in March. This will come as no surprise to anyone who read Rubin's 2009 book, Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization (Random House Canada).

China still has a trade surplus through the first three months of the year. And overall trade still grew, which will be cited by those who don't see any economic transformation occurring as a result of diminishing oil supplies and climate change.

Here at home, Statistics Canada reported last month that the pace of Canadian exports slowed in January. Exports to the U.S. declined 0.6 percent and imports fell by 0.5 percent.

Exports to countries other than the U.S. rose 3.8 percent, whereas imports from countries other than the United States decreased 3.9 percent, led by a fall from the European Union.

For the past 25 years, the corporate sector in Canada has promoted trade as some sort of economic panacea. You'll sometimes hear economists say that countries that trade don't go to war.

But all might not be as well as it seems, particularly if oil prices continue rising. The current price of US $85 per barrel is relatively high on an inflation-adjusted basis.

As this chart indicates, oil prices have only surpassed this level on an inflation-adjusted basis three times before: 1980, 1981, and 2008.

The inflationary period in the early 1980s triggered the worst economic slowdown since the Second World War.

Everyone knows what happened to the world economy in 2008. International trade plummeted as a result.

It could happen again.

I'm beginning to wonder if the B.C. Liberal government and its cheerleaders in the media are looking in the rear-view mirror--and not to the future--when they promote policies like the HST that blindly assume that more international trade is inevitable.

Follow Charlie Smith on Twitter at twitter.com/csmithstraight.

Comments

11 Comments

Eric Doherty

Apr 11, 2010 at 10:43pm

The Guardian has published an account of what the US military thinks about the oil supply and price outlook:

US military warns oil output may dip causing massive shortages by 2015

Ӣ Shortfall could reach 10m barrels a day, report says
Ӣ Cost of crude oil is predicted to top $100 a barrel

The US military has warned that surplus oil production capacity could disappear within two years and there could be serious shortages by 2015 with a significant economic and political impact.

http://www.guardian.co.uk/business/2010/apr/11/peak-oil-production-supply

This is no time to be spending billions on freeway expansion, while raising transit fares. The age of cheap oil is over, as is the age of the freeway.
http://gatewaysucks.org/

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FarmsNotFreeways

Apr 12, 2010 at 12:37am

There is actually 1,200 hectares under threat from Gateway if you include the port expansion. See: http://www.straight.com/article-281368/vancouver/harold-steves-decries-p...

ALR cofounder Harold Steves told the crowd at a recent anti-Gateway action that this land could feed 100,000 people. See: http://www.bclocalnews.com/richmond_southdelta/southdeltaleader/news/892...

The impacts of the sprawl and industrialization triggered by these projects would be much, much worse than even that. Thankfully, most of the damage is actually not yet done, there are people still working to stop this insanity, like the folks at GatewaySucks.org

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We're fine

Apr 12, 2010 at 11:43am

Cause there's still lots of ALR to go around. Huge swaths of it are just used for unproductive hobby farms or fancy houses. Tighten the rules on what qualifies for farm status, and jack up the taxes on properties that aren't producing... problem solved.

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Shepsil

Apr 12, 2010 at 9:29pm

4 of the first 5 comments are on the money and the best indicator of poor thinking and no foresight by our government. The state of the worlds marine shipping industry in the <a href="http://www.spiegel.de/international/business/0,1518,685207,00.html"> article linked above</a> by "PoliticsReSpun.org" in Der Spiegel shows rates for marine shipping having dropped by over 300% in the last year or so and thats not even considering the financial industry's problems to come and here we have the BC Liberals and Harpers Conservatives supporting a Gateway transportation project that is going to be a white elephant just like Montreal's Mirabel Airport was.

Stop the Gateway Project and the South Fraser Perimeter Road before its too late, spend the $ on mass transit so we can have a decent system for moving people inexpensively.

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glen p robbins

Apr 13, 2010 at 11:58am

Include gasoline prices in consumer price index -- inflation etc.

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Evil Eye

Apr 13, 2010 at 9:18pm

Combine 'Peak Oil' with 'Global Warming' and we are entering a crisis with both eyes closed.

Gordon Campbell and his ilk firmly believe that unlimited growth is the cosmic mantra, sadly for these latter day Luddites, we are going to hit a massive economic wall.

Car dependent societies will collapse as their economic output will be squandered in buying oil. Only countries that have a large electric railway networks, will be able to survive the crisis.

The end is nigh!

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genegenie

Apr 14, 2010 at 1:36am

Unfortunately, I don't see the NDP as having any foresight either. Carol James doesn't have a clue about climate change and appears to be just as ignorant of the effects of peak oil as the Liberals. It is time for a new political party. We are very poorly served by the two we have.

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RodSmelser

Apr 14, 2010 at 2:26pm

Eric Doherty

The Guardian has published an account of what the US military thinks about the oil supply and price outlook:
...
This is no time to be spending billions on freeway expansion, while raising transit fares. The age of cheap oil is over, as is the age of the freeway.
===================================

Eric, do you think it's possible that the Pentagon might take an overly pessimistic view of future oil markets in order to make a case for expensive and aggressive stockpiling, or worse, active military interventions in oil-producing regions?

As for when its time to stop building freeways, apparently China has not heard the message from folks like yourself, Stephen Rees, Anthony Perl, Gordon Price, and Larry Frank. They are building the largest freeway system in the world, and a good part of that system is in urban areas such as Beijing and Shanghai. You can see all that on google maps and air photos.

http://www.google.ca/maps?ie=UTF8&hq=&hnear=Maple+Ridge,+Greater+Vancouv...

Rod Smelser

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