Venezuela attack shakes Canada’s economy far beyond oil – it’s a reckoning for the ages

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John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.

The U.S. raid on Venezuela has raised the threat level in Canada. The immediate concern has been whether it would dent Canadian oil exports, though the bigger worry is if the apparent success of the military operation in Venezuela makes this country next. Donald Trump has never backed away from his suggestion that Canada should become the 51st state, and the White House has laid hungry eyes on our mineral resources.

The short answer to the first question is no, the oil patch won’t take a hit any time soon. However, on the second point, concern is more warranted. One thing we can probably assume is that, in the coming year, Mr. Trump will ramp up his foreign misadventures. The U.S. presidency is quite unrestrained when it comes using its powers abroad, and the temptation often proves irresistible for White House occupants when things are going badly, politically, at home.

But fortunately for Canada, Mr. Trump’s Venezuelan foray makes a move on Canada less imminent. The only way he can make good on his vow to control Venezuelan oil is to launch a military occupation that will bog the U.S. down for years. If he were to walk away instead, it would show he’s not up for a fight.

What the U.S. attack on Venezuela could mean for oil and Canadian crude exports

So far, Mr. Trump’s military moves have amounted to drive-by shootings, and if that turns out to be his pattern, designs on Canada and other countries in the Americas will probably remain rhetorical for now (though Greenland may be another matter).

But unfortunately, any chance that Canada can ride this one out and hope for the return in three years’ time of a sane presidency can also be ruled out. The U.S. isn’t turning on the world because Mr. Trump is President. Mr. Trump is President because the U.S. is turning on the world. The America First constituency is large and durable, and even if it loses some elections, it will win others. This is the world in which we now must live.

And Canada, which arguably benefited more than just about any other country on the planet from the old world order, will accordingly have to make a bigger adjustment to the new one than most. The 20th century brought Canada four generations of peace almost for free; after the wars, we were able to shelter under the U.S. security umbrella. Canada’s defence spending was risible, leaving money for other purposes.

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Equally, our proximity to a benign U.S. meant we had easy access to the world’s biggest market. Rich in resources that the industrial economy to the south required, we didn’t need to spend as much building new industries or maintaining industrial competitiveness. We just pulled stuff from the ground and sent it south; what manufactured exports we sold to the U.S. were made largely within that country’s industrial sector.

So Canadians, with minimal effort, attained a standard of living that other countries had to make greater sacrifices to reach. In effect, Canada got to be a rich Third World country – or rather, it got the benefits of being a 51st state without any of the attendant expenses.

That era is gone. Henceforth, we will only sink or swim on our own effort. To maintain its sovereignty and prosperity, the country will need to commit much more to its own defence, thereby raising the cost of any future American adventurism (or anyone else’s, for that matter). It will have to adopt a more expansive diplomatic presence, working with like-minded partners to maintain what remains of the multilateral order, coupling that to an expanded foreign aid program to cement ties.

It will need to invest more, raise its labour productivity and develop new products and industries. Because if there’s one thing the Venezuelan gambit has revealed, it is that relying on commodity exports with readily available substitutes is no longer a viable strategy. It leaves us at the mercy of trading partners’ procurement decisions.

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Canada can’t replace the U.S. as its principal trading partner – economic gravity makes that impossible – but it can reduce its vulnerability by developing products our partners can’t easily find elsewhere. That’s why, for instance, Mr. Trump has been so gentle with the Chinese – because the U.S. can’t do without many of the products China supplies.

There’s no way of doing this on the cheap. Canada has the wealth to rise to these challenges, but it will have to reallocate a substantial chunk of it away from consumption to meet them. Taxes will have to rise. Investment will need to be aligned with national needs, which means big institutional investors, among them Canada’s pension funds, can no longer be allowed to merely chase the highest returns; they will have to also meet national objectives.

For some, this reduction in the style to which they’ve grown accustomed will be an unacceptable imposition. But what are the alternatives? Application for U.S. statehood would become the obvious choice.