Sunday, June 07, 2009

Canadian Content

"What's good for the goose is good for the gander," goes the proverb.

Yet when it comes to economic protectionism, neither goose nor gander gets what's good. No matter who plays the protectionism game, everybody loses. (See Smoot/Hawley.)

Now Canadian municipal officials are biting back at the protectionism provisions of the Obama administration's economic stimulus package. Their argument is, if Canadian businesses are excluded from providing services to American states and cities under the stimulus rules, then American firms should be excluded from providing services to Canadian cities.

Thus the downward spiral begins.

Here's the beginning of the report from the CBC:

In response to the 'Buy American' provisions of the U.S. stimulus package, Canada's mayors narrowly passed a resolution Saturday that could potentially block U.S. companies from bidding on city contracts.

The resolution was passed at the Federation of Canadian Municipalities conference in Whistler, B.C., by a vote of 189-175.

The resolution says the federation should support cities that adopt policies that allow them to buy only from companies whose home countries do not impose trade restrictions against Canadian goods.

The Whistler Question (isn't that a great name for a newspaper?) noted how the vote was nearly split down the middle, and asked politicians who voted each way for their reasons:

Dianne Watts, the mayor of B.C.'s second-largest city, Surrey, voted in favour of the resolution because she said Canada needs to have a level playing field with its neighbour.

"We support free trade. We support open markets. But we've seen our local companies having to lay off workers because they've been hit directly by American policies," said Watts. "One company, their materials were on the site in the States and they sent them back."

But almost as many voted against it, fearing that it would just provoke Americans more and, worse, that it's un-Canadian.

"By lashing back, we're becoming more American," said Claude Elliott, the mayor of Gander, Nfld. "We need to take the high road and rise above that. We're negotiating with a U.S. company right now to set up in Gander and we don't need to put up any barriers."

In southeast Saskatchewan, where a booming oil industry attracts all kinds of American interests, Weyburn city councillor Bill Rudachyk didn't see anything to be gained by introducing protectionist policies or even threatening to.

"Two wrongs don't make a right," said Rudachyk, whose town recently hosted the second-biggest oil show in Canada, which attracted U.S. companies. "And we don't want retaliation."

An editorial in the Edmonton Journal is worth a read:
... other local leaders and organizations such as the Ottawa Chamber of Commerce are clamouring for our own "Buy Canadian" policy to combat the American move. After all, they contend, much of our stimulus package cash is designed for local projects, so why not mandate it that we look out for our own?

The answer is simple enough. While buying locally, regionally and nationally often makes a good deal of sense, enshrining that practice by law is ultimately self-defeating to the interests of a nation so dependent on other markets. Provinces, and especially municipalities, which have long drawn the short stick among the levels of government in Canada, must be free to make the most intelligent buying decisions for their citizens available. Tempting though it is to give our neighbours a taste of their own medicine and reward firms contacts simply because they are Canadian, it's a bad idea that will backfire. Like it or not, we must depend on our leaders to convince our customers to remember who their real friends are, and how grave the dangers are of backsliding into darkness.

Fortunately for Canada, its chief trade spokesman understands the basic economic principles that militate against protectionist policies. He argued against the mayors' resolution, although his views did not prevail in the final vote. Reports the Ottawa Citizen:

Trade Minister Stockwell Day is concerned about the second part of this motion and is urging delegates not to adopt it, as it could set off a retaliatory round of protectionist moves that experts say would ultimately damage the Canadian economy.

He said the federal government is aware that Canadian companies are being discriminated against by U.S. state and municipal governments on some water and sewage treatment projects funded by the stimulus bills, and they are working to correct the situation.

“If one country starts to build protectionist barriers that hurt businesses in another country, there will be an impulse to retaliate, and I would like to see this resolved at the executive level in the United States,” Day said.

Canada and the United States are each others' greatest trading partners. The commerce that crosses the U.S.-Canadian border keeps both economies vital. A trade war between the two North American giants would be devastating for both, and would have horrendous consequences for the rest of the global economy, as well.

The fact is, "Buy American" or "Buy Canadian" legal mandates are misguided and harmful. Let individuals and businesses choose what products and services they want to buy (and sell) regardless of source. That is what "free trade" and "free markets" really means. That is what "freedom" means.

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