Is Protectionism the Answer?
Jul 23, 2009
There has been significant debate of late about the U.S. “Buy America” policies and the effect they have on trading partners like Canada. This issue seems to come up every few years, but this time has been revived as a result of the Buy America provisions included in the American Recovery and Reinvestment Act, which is more commonly known as the ‘stimulus’ package that was signed into law by US President Barack Obama in February 2009.
Under the Act, all US companies receiving federal stimulus aid money must only purchase materials and equipment manufactured in the United States. Understandably, this has caused a division of opinion between those who think this is a good way to get the economy back on track and those who think it is a step backwards.
Most opposition to protectionist actions such as this come from US transnational companies that rely on free trade provisions for their business. Obviously, any such policies that serve to curtail that will meet with strong objection.
On the other side of the fence of this debate are those who believe that buying American contributes to the stimulation of the U.S. economy and creates (and retains) American jobs. They point to foreign-owned multinationals that operate in the U.S. that funnel money back to their home countries and thereby do little to support the U.S. economy. For these people, free trade agreements are anathema to their well-being.
But where does Canada fit in?
Once the US provisions became known, many in Canada expressed concern. And rightfully so – as the United States’ largest trading partner, Canada could stand to lose a huge market if Buy America were to exclude goods from Canada. It has yet to be determined if this will be the case, but Canadian manufacturers are understandably concerned.
It’s hard to see how someone could even fathom turning a blind eye to their largest trading partner. Policies to keep Canadian goods out would cut U.S. / Canada trading relations off at the knees and leave both economies in even rougher shape than they are already in.
Canada could possibly respond by enforcing stricter “Buy Canadian” policies for products coming in from the U.S. Some would probably argue that this would create Canadian jobs. But this would be little more than a childish response offering no guarantee to stimulate our economy. While it would probably benefit some manufacturers, others would surely suffer.
Besides, people know that the impetus for such a policy is to limit the number of products coming from places with cheap labour and cheap goods like China. Canada is not one of those countries. In fact, we face the same challenge the U.S. is facing on that front. Why Americans would penalize Canadians rather than look at policies which would strengthen the North American economy is a mystery.
It seems that these types of policies speak to the larger issue of what Americans really think of their neighbours to the north – even if they now have a “Canadian-friendly” President. They’re fine to continue their friendly relationship with Canada, provided that they are the ones that ultimately benefit from it.
That’s not how you treat your friends. But, as history has shown, Canada will probably roll over and take it.
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