Terence Corcoran: The economics of free trade are being lost in the fog of trade war

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeFP CommentTerence Corcoran: The economics of free trade are being lost in the fog of trade warLet the market determine the future of Canada’s auto sectorLast updated 23 minutes ago Fog settled in over the Detroit River, leaving the Ambassador Bridge shrouded in mist. Photo by Scott Webster/PostmediaIn the wake of the unruly craziness of United States President Donald Trump’s nationalist trade theories, policies and actions, the economic world has been lost in endless analyses and posturings focused on trade as a form of war. We are therefore living in a dense fog of incoherent tariff-war theories — reciprocal tariffs, strategic tariffs, quotas, national strategies, export controls and restrictions, supply chain and trade diversification, re-shoring, international middle-power partnerships and shifting middle-power trade alliances based on government strategies and controls.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountLost in the fog — more accurately, the smog — of today’s trade wars are the rock-solid economic principles of international free trade that have been abandoned and are now ignored. Maybe not totally, since a few isolated think-tanks and lone politicians support global trade liberalization, but their influence is negligible to non-existent. Name one Canadian party leader or even one politician who has publicly supported free trade principles in opposition to the battlefield politics of Trump and Prime Minister Mark Carney.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againOne of the best examples of the collapse of free trade theory is the never-ending campaign to shore up and protect the automobile industries. Trump wants production moved back to the United States while Carney wants to expand the industry’s footprint in Canada and link it up with other nations.As noted in this space last week, Canada’s auto vehicle and parts production has been in decline for a couple of decades and is on a trend line heading toward zero. Auto industry backers, however, routinely portray that as a serious blow to the economy that must be reversed. The auto industry, it is said, “drives” the Canadian economy.This is pure industrial mythology. As a percentage of Canada’s GDP, motor vehicle and auto parts production contributed about $17 billion to the Canadian economy in 2025, or less than one per cent of GDP. Total employment in the auto sector has dropped from 170,000 in 2000 to about 130,000 in 2025, a decline of 25 per cent (see chart).To see this as a political problem to be resolved by government intervention is to misunderstand markets and the economics of trade. The overall economy did not noticeably suffer from the decline in auto production or employment. On the contrary, Canada’s real GDP grew by 66 per cent over the same 25 years while the number of Canadians employed increased more than 35 per cent from 14.9 million to 21.2 million.The same can be said of the decline in U.S. auto production and employment. While the United States’ share of global auto production has dropped from 70 per cent in 1950 to less than 20 per cent in the 2020s, total employment in the U.S. economy has increased by almost 200 per cent from 60 million to 170 million.In a market economy, shifting or declining fortunes of specific economic sectors are not signs of economic decline but of economic progress under degrees of open trade, technology shifts and innovation.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.The loss of sales and employment within one or two sectors are not in themselves signs of economic problems or weakness. When the automobile replaced the horse-and-carriage, the loss of stables and horse-feeding facilities, horse breeding and carriage production created problems, but the automobile transformation led to economic growth and efficiency that exponentially overcame the losses.For a brief period beginning in 1915, Henry Ford’s revolutionary Model T was assembled at a new plant in central Toronto adjacent to today’s Annex residential neighbourhood. A decade later the specially built plant had outlived its purpose and production was moved to another location. The old plant, which stills stands at Dupont and Christie streets, has housed diverse businesses since the mid 1920s, including textile makers and a Planters Peanuts factory, “famed locally for its neon Mr. Peanut sign.” Postcard image from around 1920 of the Ford Model-T assembly plant built in 1915 at Dupont and Christie in the Annex residential area of central Toronto. Ford moved production to another location in 1925. The building then became home to a Planter’s Peanut factory and other other operations. It still stands today. Photo by Public DomainThe auto production business has been in constant transition in and out of tariffs, technology transformations and shifting economic conditions for more than 150 years.As global auto trade expanded over the past century under freer trade deals and a relatively open trading system, the locations of production and consumption were largely driven by consumer choice and corporate decisions. As tariffs eased, foreign automakers from Europe and Japan broke into the Canadian and U.S. markets.What cars would Canadian consumers buy today if autos were part of a global free-trade system? Would they rush to buy China-made EVs? Due to trade war tactics, such a choice is not available to Canadians who are today increasingly forced to choose products tariffed and approved by government.Free trade may indeed reduce employment and production within an industry, but the change frees up resources and opens opportunities in other industries. The steady rise in Canadian employment over the past 25 years clearly shows that other dynamic competitive factors are at the heart of expanding job creation and economic growth.If Canadians could buy less expensive autos made in China, Korea or wherever they would have more money to consume and invest in other products and enterprises.Such trends are already in evidence. As auto sector production and employment fell over the past quarter century, Canada’s tech sector steadily expanded. Net tech employment is expected to hit 1.54 million this year, a 23 per cent increase since 2000. The number of tech workers in Toronto is estimated at 440,000, which is four times the total number of current autoworkers in all of Canada.Writing in the Globe and Mail this week, Tom MacDonald, former director for automotive policy in the federal department of industry, argued that the situation is “dire” for a Canadian auto industry that is “marked for death” if Ottawa does not impose new 25 per cent tariffs on all auto imports. MacDonald’s economic theory is that all autos sold in Canada should be built in Canada. His motto is “Build ‘em where you sell ‘em.”It’s a bonkers theory that flies in the face of free trade principles that leave it up to consumers to “buy ‘em from whoever makes ‘em and let the auto corporations decide where to make ‘em.”Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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