At long last, Canada is on the cusp of reopening. While most Canadians are excited and eager for businesses and borders to reopen fully, many can’t help but wonder if the country is on track for a smooth economic recovery — and about our relationships with key trading partners.

It's an ideal time to touch base with professor Daniel Trefler, the J. Douglas and Ruth Grant chair in Competitiveness and Prosperity and a professor in the economic analysis and policy area at the Rotman School of Management.

A respected trade economist, Trefler explores the effects of global supply chains and the impact of China’s economic rise in his research. Earlier in 2021, he received the Bank of Canada Fellowship Award, a renewal of the fellowship first awarded to him by the Bank in 2016. Beyond his academic work, he has supported policy makers in developing productive trade agreements, including advising Global Affairs Canada on a number of matters, such as the Canada-EU trade agreement and NAFTA renegotiations.

Recently, he took a moment to reflect on the economic lessons Canada should have learned from the pandemic, why the country needs to find its niche and why China’s dominance can’t be ignored.

Here are the highlights.

We’re dealing with a market failure issue, not a resilience problem.

Will economies emerge from this pandemic stronger and more resilient? Trefler isn’t so sure. 

"I’m not convinced that we’ve learned our lesson here in Canada,” he explains. “We continue to overlook resilience in key areas like healthcare.”

He’d like economists and policy makers to start framing the recent problems we’ve experienced as market failure issues — when the goals of corporate supply chain management have proven to be misaligned with the goals of the larger society— rather than a ‘resilience’ problem.

“Governments have to intervene when markets fail,” he says. “They should be entering into long-term contracts — say 20 to 30 year contracts — with Canadian suppliers for key goods.”

Canada needs to find its niche.

We’re suffering from an identity crisis.

Simply put, Trefler says “Canada has to decide where we want to play in the global value chain.”

While other regions have defined and capitalized on their strengths — Silicon Valley is the global capital for startups, Germany has established itself as an automotive manufacturing powerhouse, and China specializes in industrial products — Canada needs to understand its particular strengths to better support, foster and retain its talent.

“We’ve seen it happen again and again. When a startup begins to be successful, they relocate, and that’s because we haven’t anchored them firmly enough in the Canadian ecosystem,” he says. “We need to identify where, as a country, we want to compete, and work towards building an intricate web of supportive relationships that keep companies and talent glued here.”

China will not go quietly.

China currently has a stranglehold on supply chains, and Trefler has no doubt that it will be able to maintain its position.

There will likely be difficult and complex negotiations ahead, with many World Trade Organization (WTO) member nations (including Canada, the U.S. and Japan) pushing back against China’s policies around subsidizing private firms.

“The rhetoric in the United States is hawkish and almost impossible to dial down. Likewise, in China the rhetoric is extremely nationalistic. The constant vilification of ‘the other’ is not helpful,” he says. “We’re seeing major powers at loggerheads, and these talks will be difficult.”

The good news, Trefler points out, is that China has been at the table and willing to negotiate.

Budget 2021 is a step in the right direction.

While most Canadians might have been concerned by the hefty deficit associated with the recently tabled Budget 2021, Trefler is encouraged by it.

“To my mind, the biggest threat to Canada and other countries is the stretching and weakening of the social fabric,” says Trefler, who is increasingly concerned by the growing economic inequality he’s observed.

“The budget we’ve been presented with addresses those issues head on,” he says. “We need to design economic policies for a more compassionate world.”

Though some might argue that the proposed fiscal policies — which include introducing an affordable national childcare plan, reducing emissions and raising the minimum wage — might be too costly, Trefler believes that the intent behind them is justified.

“It’s a step in the right direction in terms of making sure that the Canadian social fabric never gets stretched as thinly as we’ve seen it recently.”