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CANADA has long taken the rather smug and unrealistic position that no matter what difficulties were encountered by other countries, its economy, based on a wealth of natural resources such as oil, uranium and timber, would be immune. By September, however, Prime Minister Trudeau confronted mounting evidence that Canada was in deep economic trouble. The country was in recession, the jobless rate had climbed to 7.2%, inflation was running at a compound annual rate of 12.7%, and wage increases were sprinting at an annual rate of 18.8%—twice that of the U.S. On Oct. 13, Trudeau announced to a surprised nation the imposition of selective wage-price controls. Labor unions immediately protested and vowed to take their case against controls to court. More thoughtful critics agree that controls will probably help dampen inflation. But, asks a senior economist of the Bank of Canada, "what about the rest of the problems?" Trudeau has so far failed to offer any policy to expand production or reduce joblessness.
Despite its own domestic problems, the U.S. cannot afford to ignore the weak state of its trading partners' economies. Magnanimity apart, continuing recession in Europe and Canada, which provide important markets for American goods, is certain to impede U.S. trade and the recovery in general. In addition, the global downturn cuts directly into the profits of a growing number of American-based companies that get more than half of their earnings from foreign operations. Among them are such familiar names as Pfizer, Gillette, Hoover, Johnson & Johnson, Scholl, J. Walter Thompson, F.W. Woolworth, Dow Chemical, Avis, International Harvester, and Black & Decker.
Fundamentally, the opportunities for coordination of international economic policy are limited. There is no magic formula for determining how rapidly a nation can stimulate its economy without kindling ruinous inflation, or how hard it can crack down on inflation without bringing on a recession. For the moment, at least, every government has to grapple with that problem on its own, by what might as well be recognized as a process of trial and error. So long as that is so, national economic policies are bound to differ.
But if the opportunities for cooperation are limited, they are not negligible. The U.S., for example, might reconsider its stand on exchange rates. While nobody wants to go back to rigidly fixed exchange rates, some agreed rules to stabilize world money markets are needed. In addition, governments can at least try to avoid policies that hurt their neighbors—for example, subsidizing exports and discriminating against imports enough to give one nation an unfair advantage in world trade. The significance of the Rambouillet summit is that heads of government are no longer leaving such questions to their economic advisers, but tackling them in person. The summit thus could usefully be followed by further similar meetings.