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Amid rising unemployment, a provision in the US stimulus package unleashes fury.
TORONTO — The made-in-America global economic slump came crashing down on Canada last week.
Government statistics revealed that 129,000 jobs were lost in January, the largest monthly decline in 30 years. The losses pushed Canada’s unemployment rate from 6.6 percent to 7.2 percent. That means 1.3 million people are out of work. Some economists predict double-digit unemployment by the end of the year.
None of this was a surprise to Canadians. They didn’t need government statistics to tell them their factories had shut down, particularly in the manufacturing sector, which has been hemorrhaging jobs for months.
Still, the numbers came as a staggering psychological blow. Until then, there had reigned a tentative sense that Canada might escape the worst of the economic ravages south of the border. Canadian housing prices had dropped, but no one feared a crash in a market relatively free of subprime mortages. Banks had been stung by investments in the alchemy of the U.S. mortgage industry, but their traditionally conservative financial ethos left them standing firmly. And the conservative government had been downplaying economic fears for months.
With 80 percent of Canada’s exports dependent on the U.S. market, everyone should have known better. Since last Friday’s unemployment numbers, everyone does.
The worsening economic picture explains much of the Canadian fury unleashed at the “Buy American” provision in U.S. President Barack Obama’s $800 billion-plus stimulus package.
To ordinary Canadians, the provision to spend the stimulus on American-made goods was particularly galling: The cause of Canada’s economic troubles, the country that let unregulated greed end a decade of prosperity, was about to make matters worse by succumbing to its protectionist tendencies.
Liberal Party leader Michael Ignatieff, who leads the main opposition to the conservative government, captured the public mood with a blunt message he said he’ll deliver to Obama when the president makes an official visit to Ottawa Feb. 19.
“We don’t need to talk about threats, but (Americans) need to understand, and this will be the message I pass to the president, that we’re a force to be reckoned with,” Ignatieff told the Global Television network. “We’re the United States’ largest energy supplier — not just oil, but also hydro — and they’ve got to understand that if they want energy security, they shouldn’t start putting up barriers to our goods and services. And that quid pro quo has to be clearly understood by the incoming administration.”
Prime Minister Stephen Harper had Canada’s ambassador to the U.S. protest the Buy American clause with a letter warning that it could trigger protectionist trade wars that would kill many more jobs. For the most part, Harper and his economic ministers loudly made clear that the directive violated the North American Free Trade Agreement — an argument that suggested they had limited knowledge of the trade deal.
Last Thursday, the U.S. Senate amended the Buy American restrictions to say they must adhere to U.S. obligations under international deals. Canada’s trade minister, Stockwell Day, applauded the move. But by then, astute political observers had dismissed the whole debate as little more than political posturing.
Buy American requirements have been law in the U.S. since 1933. Including them in the stimulus package allowed Democratic politicians to score points with voters while doing nothing new.
As for the amendment, it means NAFTA should be respected. But trade dispute mechanisms between Canada, the U.S. and Mexico would ensure that happened in any case. And few have noted that NAFTA only applies to direct federal procurements. It doesn’t cover projects at the state or municipal level, where many of the infrastructure programs in the U.S. stimulus package will get done.
In short, after much political huffing and puffing, the status quo was reaffirmed all around. Yet the Canadian government would love to portray it as a political victory, one that makes Harper seem like a strong protector of Canadian interests.
His strategists are surely hoping the episode helps Canadians forget what critics say was Harper’s “don’t worry, be happy” attitude last fall. The prime minister insisted at the time that Canada was insulated from the economic troubles down south and advised Canadians to see the plummeting stock market as an opportunity to buy low.
Indeed, Harper only presented a stimulus package of his own Jan. 27 — $28.5 billion over two years — after opposition parties threatened to defeat his minority government in a parliamentary vote, and throw it out of power, unless he presented one.
Finally, the impression that U.S. senators heeded Canadian warnings of trade wars, and therefore watered down the Buy American provision, reinforces Harper’s hand in opposing growing calls here for a Buy Canadian law. What’s bad for the U.S., he can now argue, is bad for Canada.
Canadian governments are always on guard against U.S. protectionism because so much of our economy depends on an open border. But in this case, much of the sound and fury seemed more about politics than economics.
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