5 Reasons Why Canada May Have a Hard Time Getting an Exemption in the Latest "Buy American" Clause

So far, 2011 has not followed the script. Canada was supposed to have been the economic leader of the G8. It was widely expected that our economy—bolstered by solid banks and commodity prices—would sail through 2011 mostly unscathed by the global malaise. Now, teetering on the edge of a recession, Canada’s economy has been dealt yet another unforeseen blow, smacked in the face by none other than US President Barack Obama.

With the proposed $447-billion US American Jobs Act announced this week, President Obama is desperately trying to deliver CPR to his own stalled economy. Included in the bill is more than $US 100 billion for the renovation of schools, the construction of roads and bridges, and improving transit infrastructure. But the stimulus spending comes with a condition: all materials for the infrastructure and construction must be sourced in the United States—the “Buy American” provision.

Canada has been here before. In 2009, a similar round of stimulus spending was splashed on the US economy with the same directive to purchase from American suppliers. That time around, the Canadian government was able to secure an exemption. That exemption expires at the end of this month.

There are five reasons, however, why Canada may not be so lucky with this latest “Buy American” provision.

First, America is more desperate than it was two years ago. Back in 2009, the US was only a little more than a year into a very nasty recession, and it hardly had time to grasp what had hit it. The unemployment rate at the time was around 6%-7%. Now, it’s above 9%—and it appears stuck there. Any time a country is feeling economically threatened, it’s natural to look inwards and be protectionist. And even though the “Buy American” provision will result in less trade and economic activity globally, it will make Americans feel like they are doing something to protect themselves.

Second, the provision will target jobs in very vulnerable sectors. In the rust-belt states of Michigan, Ohio, Indiana, and Pennsylvania, jobs have vanished in industrial manufacturing and construction. The “Buy American” clause targets companies bidding on infrastructure and construction projects, and would give a competitive edge to these sectors particularly. Jobs saved in these states are especially valuable for Mr. Obama.

Third, the Tea Party members in Congress will probably support the “Buy American” provisions in the bill. While the Tea Party Republicans talk about small government and low taxes, they should not be confused with free-market libertarians. They are all about God and country, period. If trade restrictions can save even one American job, they would gladly impose the pain on the rest of the world—even a close trading partner like Canada. It’s a nasty, “every-man-for-himself” attitude.

Fourth, Canada is not garnering much sympathy in the US these days. For one thing, our economy is still in better shape (impending recession or not). The national unemployment rate is nearly two percentage points lower than it is stateside. That may work against Ottawa when it tries to argue for another exemption. Also, Canada has been in the US news lately for another issue: the Keystone XL pipeline expansion and the plan to ship bitumen to the US Gulf of Mexico. This has been hotly opposed in Washington, and some high profile celebrities have added their names to the protest. Even the Dalai Lama has weighed in against the pipeline—and by extension, against Canada.

Fifth—and probably most importantly—the President is only a little more than a year away from the November 2012 election, at which time he will ask American voters for a second 4-year mandate. He’s down in the polls. Many Americans voted for him in 2008 believing that he would deliver change. Unfortunately for Mr. Obama, the global economy has conspired against him and the US is in worse shape than it was when he won his first election. He needs to be seen to be doing something—anything!—that will help get Americans back to work. Jobs saved in Hamilton or Regina won’t do him any good.

The Canadian government was caught blind-sided by this one. And now it’s all hands on deck in the Department of International Trade, which, led by Minister Ed Fast, is trying very quickly to regain another exemption. It may be more difficult this time around—one more piece of bad news for a country being side-swiped by a very ugly global economy.