It’s been a long time coming, but there were sighs of relief emanating from some board rooms and factory floors in Canada last Friday morning.
This day before, news came that a deal was in place to exempt Canadian companies from the Buy America clauses in the US government legislation on stimulus spending. Today, Canada’s International Trade Minister Peter Van Loan and Foreign Affairs Minister Lawrence Cannon made the announcement official. Thirty-seven US states and the US federal government are involved in the deal.
Now, Canadian companies can finally bid on infrastructure projects financed under the massive $787-billion economic stimulus package. For the better part of a year, firms on this side of the border had been shut out of the action.
Another part of the deal is the establishment of a fast-track consultation process if and when more Buy America clauses are imposed in the future. Essentially, the deal today sets a precedent which more-or-less ensures Canadian firms are exempt in the future. That’s decidedly good news for Canadian companies.
In exchange, American firms get access to provincial and municipal projects. Prior to today’s deal, American firms had access to Canada’s federal government procurement, but not provincial and municipal projects. Now these, too, are open to US bidders. Its tit-for-tat, and that’s fair.
Unfortunately, a lot of the $787 billion in stimulus cash has already been spent. The deal comes too late for a lot of Canadian companies that have long ago missed out on the chance to bid for current projects (although there is hope for projects in the future).
But these issues are minor.
The real disappointment is that the Buy America policies are still going ahead. Yes, Canadian firms are now exempt, but the US and state governments are still imposing major protectionist trade barriers.
For the global economy, that’s bad news. Even worse, Canada is unlikely to keep pressing the US to tear down these barriers. With the exemption we’ve gained, we have no incentive to lobby Washington anymore to tear down these nasty barriers.
Governments around the world are under enormous pressure to put up these protectionist policies. And in some ways, it seems perfectly natural. During a downturn, people feel insecure about their economy and their jobs. There is a sense that government need to take care of its own first and foremost.
The problems arise when governments around the world all start acting the same way. If they are not putting barriers in place out of a sense of protectionism, they may erect barriers simply in retaliation. Before you know it, global trade flows start to drop and years of gains in wealth under trade liberalization are erased.
Opponents to global trade will cheer on these protectionist developments. They are against globalism because of the injustices sometimes associated with international trade, such as the lack of labour laws in developing countries and the pillaging of natural resources in places with corrupt or naïve governments. While these issues are serious, they are not the result of global trade. To halt trade is to throw the baby out with the bath water.
If any lessons had been learned during the Great Depression of the 1930s, it should have been that protectionist barriers to global trade are counterproductive. At that time, like now, governments sought to protect jobs at home and threw up all kinds of barriers. The result was that the global economic recession was made much worse and lasted much longer than it should have.
Global trade boosted wealth
Without question, growth in global trade since the 1950s has boosted global wealth and standards of living. The Buy America policy sets a very poor example. The deal struck today will certainly benefit Canadian firms, but now, with no incentive to press Washington on trade issues, Canada is forfeiting a chance to be a leader in global trade.
The exemption is still good news for Canadian companies, and we had no choice but to take the deal. But all we’ve managed to do is get behind the Americans trade wall. Rather than being part of the solution to global free trade, now we’re part of the problem.