Canadian and U.S. flags fly above the Peace Arch monument at the Douglas-Peace Arch border crossing, in Surrey, B.C., on Aug. 9, 2021.DARRYL DYCK/The Canadian Press
Mark Wiseman is a Canadian investment manager and business executive who serves as a senior adviser for Boston Consulting Group and a board member for NOVA Chemicals.
A year ago in these pages, I argued that there is no place like home for investors, who should bank on a unified North America, where Canada and the U.S. leverage their natural, economic and geographic advantages to create an unmatched regional bloc.
Since then, the case for Canada to embrace this approach has only grown stronger. The world is headed in a more protectionist, competitive direction. Reports show that the annual number of new global trade restrictions has steadily increased to more than 3,000 in 2023 from about 650 in 2017.
Amid this trend, Canada needs to line up with its closest ally – which also happens to be the world’s largest and most important economy.
For Canada, this should mean refocusing on the U.S. as our primary economic and security partner. This means developing an integrated Canada-U.S. strategy to prepare us for success – regardless of who is in power in Washington – differentiate us from Mexico as a regional partner and ultimately provide Canadians increased prosperity.
Despite all the tailwinds of the past four years, the U.S. economy remains resilient and poised for continued growth. It experienced a 2.8-per-cent annualized growth rate in the second quarter of 2024, consumer spending is expected to rise by 2.3 per cent this year, inflation is closer to 2 per cent and business investment is anticipated to increase 3 per cent in 2024.
What does this look like in practice?
First, we must open Canada for increased competition from U.S. market participants. We are an attractive market with the fastest-growing population in the developed world, an immense geographic expanse renowned for our rule of law. However, the United States invests less proportionately in Canada than in many other jurisdictions, including Britain. Canada needs to make itself more attractive to investment (domestic and foreign) generally, but especially from the U.S.
I have long called for the elimination of barriers to competition, particularly in sectors such as telecommunications and agriculture, and am increasingly of the view that our financial services sector is also ripe for further disruption and competition. A symptom of a weak competitive environment is a lack of investment in fintech. As of 2022, fintech revenue penetration in the Canadian banking sector was 3 per cent, compared with 8 per cent in the U.S.
Amendments to legislation such as the Bank Act should liberalize competition across our financial services industry because increased competition drives innovation, addresses affordability and productivity concerns, and increases access to capital resources and investment from the world’s leading financial services market, the U.S.
We also need to better collaborate and integrate with the U.S. on border security and efficiency. This has become a critical issue in U.S. politics, and we can play a part in helping improve the situation, while improving things for us.
Canada should work to establish Canadian preclearance facilities in U.S. locations, beyond the current pilot projects, to expedite the flow of legitimate travellers and goods while identifying threats earlier. We should also more widely adopt new technologies such as biometric verification and self-service tools to provide a more efficient border experience for admissible travellers, while using data analytics to assess compliance risk. The multiple traveller processing systems that exist across the Canada Border Services Agency should be combined into a consolidated solution.
For security and crime prevention, Canada should develop a centralized, real-time information-sharing platform that allows law enforcement agencies in both countries to access intelligence on criminal activities, trends and suspects, facilitating quicker responses to cross-border crime. Drug trafficking, human trafficking, arms smuggling and organized crime are big cross-border activities that require joint task forces to address.
Looking North, Canada needs to do more regarding Arctic defence. As climate change opens new shipping routes and resource opportunities, actors such as China and Russia have made substantial, threatening incursions that we are not equipped to deal with absent the might of U.S. military resources.
The biggest roadblock to a better collaborative approach is a lack of funding on the Canadian side. Our defence spending is projected to rise to 1.76 per cent of GDP by 2029 from the current 1.3 per cent, but that still falls short of NATO’s 2-per-cent target. Only $218-million over 20 years is earmarked for establishing Northern Operational Support Hubs, which are crucial for maintaining a consistent military presence in the Arctic. Given the vastness and strategic importance of the region, this is insufficient.
Importantly, we don’t just need to spend more, we need to move much faster. The world is an increasingly dangerous place. We cannot have a “plan” to spend more in the future. We must live up to our obligations to support the United States and our other allies now. We owe it to our most important partner.
Perhaps the greatest opportunity for better collaboration relates to cross-border data flows, and the biggest barrier is the misalignment of data protection legislation. Harmonizing data protection legislation across Canada and the U.S. would spur the development of data centres that would bring myriad benefits to both countries.
These centres should be built in proximity to renewable power sources. It is much easier and cheaper to move data than to move electricity. Putting data centres next to Canadian renewable energy is a sustainable approach that would prevent the loss of electricity when transmitting it over long distances. Unlike power, data do not degrade down fibre-optic cables.
Data centres are the key to the future of the digital economy. They are the backbone for cloud computing and artificial intelligence; the global data-centre market is predicted to grow at a compound annual growth rate of 12 per cent to 15 per cent between now and 2030, with construction spending projected to exceed US$303-billion during this period.
The U.S. digital economy accounts for approximately 10 per cent of national GDP, contributing more than US$2.5-trillion, with an annual growth rate of around 9 per cent – vastly outpacing the rest of the economy. In fact, it is the primary driver of the U.S. productivity growth that we are lacking in Canada.
Global data flows are projected to contribute between US$54-trillion and US$85-trillion to the global economy by 2025. The best way to seize the opportunity of this growing market is through a Canada-U.S. strategy.
Canada’s primary legislation governing data privacy includes the Personal Information Protection and Electronic Documents Act (PIPEDA). The U.S. does not have a single, comprehensive federal law regulating the collection and use of personal data; instead, it has a patchwork of federal and state laws.
We need a joint framework that aligns our data regulation, without watering down standards. Just as the EU adoption of the General Data Protection Regulation has shown us, we can embrace harmonization and strong protections.
Canada should not be on the sidelines of the growing data-centre market. Data harmonization would represent the boldest step ever in developing a sustainable, innovative, integrated North American economy.
We should embark on an ambitious path forward that positions the Canada-U.S. economic relationship on its own strong footing, particularly considering recent security and diplomatic tensions with Mexico. When the USMCA is reviewed in 2026, we will have a unique opportunity to differentiate ourselves from Mexico – and we need to be highly pragmatic and self-interested in our approach. By opening competition, collaborating on shared national security priorities, and building the legislative and regulatory framework for improved data flows, we can do exactly that.
It will not be easy, but the status quo is not acceptable either. We need our leaders to think bigger, unlock value and lay the foundations for a more prosperous future with the United States.