Is There a Trade War Brewing on the Northern Border?

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Global Trade

A brewing trade war between the US and Canada over Buy America discrimination towards products made Canada is a foretaste of what is to come in terms of relations with the rest of the world. As Jay Myers, chief executive of Canadian Manufacturers and Exporters, the nation’s largest industry association is quoted in the Washington Post as saying “If the US and Canada can’t avoid entering into a trade war, God only help the rest the world.”

Canada was never intended as the target of the Buy America clause in the stimulus package. It was intended more to prevent the flight of hard earned tax payers dollars to steel manufacturers in Asia, Brazil and even Europe. But as the US’s largest trading partner, and with many US corporations having integrated manufacturing operations on both sides of the border, the ramifications are increasingly impacting supply chains that start and finish much closer to home.

For example, Danaher Corporation cannot access its Canadian based producer of water treatment equipment if it wants to participate in stimulus projects. Trojan UV has the largest installed base of ultraviolet water treatment systems in operation around the world and is a major player in the US market but municipalities will be denied access to Trojan’s products if the project is funded by stimulus dollars.

The denial of access to these infrastructure projects comes on top of growing resentment in Canada at the realization that country has largely lost ownership of many of it’s metal and mining assets. Stelco was sold in 2007 to US Steel. Dofasco is part of Arcelor Mittal. Falconbridge Nickel was sold to Xstrata of Switzerland. Inco to Vale of Brazil and Algoma Steel and Ipsco are also in foreign hands. Driven more by local politics than anything else, Canadian politicians have started taking legal action against foreign owners if they believe they are being unfairly treated in the downturn, such as Canadian minister of industry Tony Clement’s legal challenge to US Steel over the closure of Stelco in Hamilton.

The Obama administration appears to be ignoring the issue and with rising unemployment in the US one can understand why it is a battle they choose to ignore for the time being. They are probably hoping the recovery will overtake events and demand will pick up before the issue becomes a fully blown trade row. The problem is that the combination of an inherently protectionist democrat administration and rising unemployment will combine in the coming years to foster a growing isolationist attitude, not just among law makers but among decision makers at all levels of the business community.

–Stuart Burns

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