Buy American 2: Is our luck running out?

Now teetering on the edge of a recession, Canada’s economy has been dealt yet another unforeseen blow from none other than President Barack Obama.

November 4, 2011   by Todd Hirsch

So far, 2011 has not followed the script. Canada was supposed to have been the economic leader of the G8. It was widely expected that our economy – bolstered by solid banks and commodity prices – would sail through 2011 mostly unscathed by the global malaise. Now teetering on the edge of a recession, Canada’s economy has been dealt yet another unforeseen blow from none other than President Barack Obama.

With the proposed US$447-billion American Jobs Act, Obama is desperately trying to deliver CPR to his own stalled economy. Included in the bill is more than $100 billion for the renovation of schools, the construction of roads and bridges, and improvement of transit infrastructure. But the stimulus spending comes with a condition: all materials must be sourced in the US.

Been there, done that, got the T-shirt.

In 2009, a similar round of stimulus spending was splashed on the US economy with the same directive to purchase from American suppliers, but the Canadian government was able to secure an exemption, which expired at the end of September.

This time, Canada may not be so lucky. There are five reasons why there could be trouble getting an exemption.

First, America is more desperate than it was two years ago. Back in 2009, the unemployment rate was around 7%. Now, it’s stuck above 9%. Even though the Buy American provision will result in less trade and economic activity globally, Americans will feel like they’re doing something to protect themselves.

Second, the provision will target jobs in very vulnerable sectors. In the rust-belt states of Michigan, Ohio, Indiana and Pennsylvania, jobs have vanished in manufacturing and construction. The Buy American clause targets companies bidding on infrastructure and construction projects, providing a competitive edge to these sectors in states that are especially valuable for Obama.

Third, the Tea Party Republicans in Congress will probably support the Buy American provisions in the bill. They are all about God and country, period. If trade restrictions can save even one American job, they would gladly impose the pain on the rest of the world – even a close trading partner such as Canada.

No sympathy
Fourth, Canada is not garnering much sympathy in the US these days. For one thing, our economy is still in better shape and the national unemployment rate is nearly 2% lower than it is stateside. That may work against Ottawa when it tries to argue for another exemption. Canada has also been in the US news lately for another issue: the Keystone XL pipeline expansion and the plan to ship bitumen to the US Gulf of Mexico. This has been hotly opposed in Washington, and some high profile celebrities have added their names to the protest. Even the Dalai Lama has weighed in against the pipeline – and by extension, against Canada.

Fifth, the president is a little more than a year away from the November 2012 election, at which time he will ask American voters for a second four-year mandate. He’s currently down in the polls. Many Americans voted for him in 2008 believing that he would deliver change. Unfortunately for Obama, the global economy has conspired against him and the US is in worse shape than it was when he won his first election. He needs to be seen to be doing something  that will help get Americans back to work. Jobs saved in Hamilton or Regina won’t do him any good.

The Canadian government was caught blind-sided by this one. And now it’s all hands on deck in the Department of International Trade. Minister Ed Fast is trying to get another exemption but it may be more difficult this time around – one more piece of bad news for a country that’s being sideswiped by a very ugly global economy.

Todd Hirsch is senior economist with ATB Financial in Edmonton.

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