Tuesday, February 5, 2008

Worst-case scenario for trade

In a speech today, Nicolas Sarkozy said that Bombardier was welcome to bid in contracts for trains in France if Canada extended the same courtesy to Alstom. In order to analyze the effects this would have, lets consider what most people think to be the worst-case scenario. This being where Alstom is able to drive Bombardier's trains completely out of the market, leaving their workers unemployed. However, these workers wouldn't just sit around. They would relocate to firms with more innovative ideas and resources; increasing Canada's GDP along the way. Meanwhile, we would be able to utilize better trains at lower cost in Canada. Does it sounds like the worst case scenario is better than what we have now? That's because it is. Free trade is good for both Canada and France.


M. said...

Bobardier trains for the French market would likely be made in their facilities in Kassel, Germany. Canada's GDP wouldn't be affected.

So really Sarkozy is blocking trains made in Germany, an EU partner with total access to French markets. Can he do that?

And I don't think Canada has a free trade agreement with France. The only European countries we have a FTA with are Norway, Iceland, Switzerland, and Liechtenstein.

Travers said...

"m" made an excellent point, but even if the trains were made here, I disagree with one assumption: the workers would simply find work elsewhere. There's been a persistent problem of manufacturing labour having no where else to go but down the economic ladder. It's true of most mature industrial economies that manufacturing moves out while services & "knowledge" sectors boom, but you can't turn a mechanic into a Java programmer.

But having said that, I don't see a problem with the two countries opening competition like this because as "m" said, both companies would operate factories locally. Partly for economic reasons, but also to smooth over political issues. In the end, it would be the knowledge and abilities the companies could muster, and Bombardier is such an international company that it's hard to think of it as Canadian anymore. So in the end, I think it would end up in a better outcome for both countries.

Travers said...

More importantly, Alstom apparently has a "rolling stock" facility in Montreal, so it would be Bombardier workers moving to Alstom, probably.