Build, Canada, build. And do it now.
It’s understandable that much of the focus in Canada-United States trade talks has been on protecting traditional industries—autos and auto parts, steel, aluminum, and lumber—for that’s where many of today’s jobs are.
The danger is that by focusing on protecting traditional industries Canada will neglect the space we need to succeed in the industries of the future—in particular, the fast-emerging world of artificial intelligence and the digital stack, as in the many layers that enable the development of AI capacity to solve problems and deliver benefits for Canadians. This is a key reason digital sovereignty matters.
“What’s been missing, so far, is a strategy for technology and digital goods,” Vass Bednar, managing director of the Shield Institute, a national research and advocacy group fighting for digital sovereignty, wrote recently in The Walrus magazine. “It’s great to diversify trading partners, but what do we do about the fact that Canada remains almost entirely under the thumb of American Big Tech?”
As Bednar pointed out, “Our cellphones are dominated by Apple and Google. Cloud computing is dominated by Google, Amazon, and Microsoft. Online advertising is dominated by Google and Meta. We may consume these services in Canada (and sometimes even via servers located here) but the companies controlling the technology are overwhelmingly foreign.”
These are, as communications industry expert Timothy Wu has said, extractive companies: they extract big profits from Canada and lobby hard—with U.S. President Donald Trump as their enforcer—to avoid paying their fair share of taxes here or to allocate an appropriate share of profits to support Canadian culture or highlight Canadian content on their streamers. Moreover, the U.S. government has potential access to all the data contained in these networks.
Canada made damaging concessions limiting our policy-making capacity in the digital economy in the original negotiation of the Canada-U.S.-Mexico Agreement (CUSMA) and, based on information we have from the recent failed bilateral negotiations, the U.S. made further digital sovereignty demands that would have made Canada even more a vassal state to these hyperscalers.
“Without a cohesive strategy for digital sovereignty,” Bednar warns, “we will win some room in the low margin part of the economy and continue to concede in the high-margin part permanently—the [intellectual property], platforms, software, data, and infrastructure where economic value increasingly accumulates.” The real value will be captured south of the border.
The American grip is already huge.
“Between 64 and 70 per cent of Canadian internet traffic already routes through American territory,” says Rafal Rohozinski, a principal in the SecDev Group, in a paper published this past January by the Centre for International Governance Innovation. “Until 2023, no trans-Pacific fibre-optic cables terminated in Canada; nearly all land on the American West Coast. More than 61 per cent of Canadian businesses store critical data on American cloud services.”
“The digital economy that increasingly defines Canadian prosperity runs on infrastructure neither owned nor controlled domestically,” Rohozinski continued in the article entitled, Sovereignty: Terms and Conditions Apply.
Even worse—the Trump administration is trying to coerce countries such as ours into becoming even more dependent on and subservient to the U.S. and its hyperscalers. This was clear in the 2018 CUSMA negotiation, in the U.S. National Security Strategy published last year, in the heavy-handed pressure on Canada to rescind the digital services tax and pull back on the policy to require foreign streamers to support Canadian programming, and in the trade talks that Ottawa eventually halted and which included U.S. efforts to impose “digital trade alignment,” which would seem to limit our ability to make digital trade agreements with other countries.
The National Security Strategy said that Canada should be part of an American-led hemispheric sphere of influence and be sole-source buyers of American “strategically vital assets,” including cloud infrastructure, artificial intelligence platforms, and digital networks.
Last year, under U.S. pressure, Canada rescinded the digital services tax, a levy that would have forced Big Tech to make a modest tax payment on their vast Canadian profits. At the time, Finance Minister François-Philippe Champagne promised that “rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians.”
It didn’t. We got nothing in return.
Foreign platforms capture somewhere between $30-billion to $40-billion a year from the Canadian advertising market alone, trade expert Barry Appleton says. He argues that this number would be much higher if we counted all the free data the hyperscalers collect from Canadian users. This data is worth a lot of money.
The 2018 CUSMA agreement would seem to have already given the U.S. much of what it needed to hamper Canadian efforts to pursue digital sovereignty, Appleton says. “Under Chapter 19 of CUSMA, Canada cannot tariff a data flow, cannot discriminate against American digital products, cannot require that data about Canadians be stored in Canada, and cannot demand to see the source code of an algorithm as a condition of market entry except in a specific investigation.” This was all given away six years ago by a naive Canada.
But there are some loopholes. One is that nothing in CUSMA prevents Canada from supplying a grant or subsidy to a domestic firm. So, while we can’t use regulation to prefer a Canadian digital product, we can fund one. Moreover, chapter 19 does not apply to government procurement—“it limits what Canada may require of others. It does not limit what Canada may build for itself,” so “construction builds an alternative that Canadian law governs.”
So what we need, then, is a strong determination to build and support Canadian entrepreneurs and projects in pursuit of digital sovereignty—such as support for quantum computing, application projects for AI, and the potential to reinvent Canada Post as a key infrastructure and service provider.
Build, Canada, build. That’s the message. And do it now.
David Crane can be reached at crane@interlog.com.
The Hill Times