The economic woes of Washington state’s second-largest trading partner undoubtedly will ripple across the border.
Sitting here in the Northwest, we can be forgiven for having a distorted picture of Canada.
Seattle has more than a little Vancouver envy, looking at a nearby city so prosperous, so beautiful, so cosmopolitan — and yet so tolerant in that Canadian way.
The only downside is that Vancouver is the most expensive city in North America, with demand juiced up by Chinese billionaires and their children buying property and speeding through the city in Lamborghinis.
But Canada is not Vancouver or even British Columbia. America’s northern neighbor and largest trading partner has been struggling economically, presenting a challenge (and perhaps an opportunity) for the charismatic new Prime Minister Justin Trudeau.
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Last week, the International Monetary Fund downgraded its outlook for Canada for this year and next. Gross domestic product is projected to grow by 1.5 percent and 1.9 percent, respectively.
Last year Canada’s GDP grew by an anemic 1.2 percent — half the rate for the United States. The IMF expects U.S. growth to continue in this higher range over the next two years.
Meanwhile, Canadian unemployment stood at 7.1 percent in March, down two-tenths of a point from February but still higher than 5 percent in the United States.
What’s going on up there, and what are the implications down here?
The short answer is that although Canada didn’t face a housing and financial collapse like the United States in the Great Recession, the Canadian economy was still deeply affected by the contraction of its huge neighbor. (Canada is 36 million people vs. 323 million for America).
Then, oil prices fell amid a larger commodity bust caused by the weak world economy, especially in China and other developing countries. Canada is heavily dependent on selling its natural resources, especially oil from the Alberta tar sands.
Brent crude-oil prices fell from more than $114 a barrel in June 2014 to $26 this past January.
Last week, the price had risen above $40, but the damage has been extensive for oil producers. “Heavy crude oil,” such as that from tar sands, requires a high price to make it economical because refining is so costly.
To be sure, Canada’s falling dollar not only gives American visitors a favorable exchange rate but makes Canadian merchandise exports more competitive. (The dollar, or “loonie,” strengthened some last week when the Bank of Canada kept interest rates steady).
Still, weak commodity prices will offset gains from exports and tourism.
Trudeau, son of one of Canada’s most consequential prime ministers, Pierre Trudeau, has announced measures to improve the economy. They are at odds with the austerity enforced by gridlock in the other Washington and by conservative economics among ruling Tories in London.
He intends to raise taxes and borrowing to invest in infrastructure and green energy.
Austerity under Trudeau’s predecessor, Conservative Stephen Harper, was a painful failure, so a majority of Canadians are willing to experiment.
The Broadbent Institute, an Ottawa think tank, estimated that every dollar spent on infrastructure would generate $1.43 in short-term economic growth and $3.83 in the long term. Realistically, reaping these benefits will take time and patience, John Geddes wrote in Maclean’s.
Canada’s economic condition is important to Washington state. The country was our second-largest merchandise export destination last year, accounting for more than $8 billion in business. Countless local companies have close connections, such as the Microsoft development center in Vancouver.
If it weren’t for China buying squadrons of Boeing airplanes in recent years, Canada might still be the state’s largest trading partner. It was as recently as 2008.
Last year, researchers from Western Washington University produced a report on Washington’s economy in relation to Canada.
They wrote, “The benefits from the Washington-Canada relationship are broadly shared.
“Canadian consumers benefit from shopping opportunities both in Washington and at Canadian locations of Washington retailers. Flows of talent and high-tech inputs from Canada contribute to the success of world-class Washington businesses …”
It is a competitor, too, especially for seaborne cargo. Vancouver and Prince Rupert are robust rivals to Seattle and Tacoma (and have the advantage of no U.S. Harbor Maintenance Tax).
At the same time, Washington ranked only 10th among the states in merchandise exports to Canada in 2015. Texas, Michigan and Ohio were the top three. We were even behind Tennessee (perhaps due to its production of auto parts).
But there’s no denying the intertwined reality. I can’t see Canada from my condo balcony, but the Puget Sound will feel Canada’s economy for good or ill. And Canada’s fortunes will be connected to the health of the American economy.
It’s also something for partisans to consider if they want to emigrate depending on the outcome of the election.