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Political and economic uncertainty in the U.S. a mixed blessing for Canadian exporters

Peter Caulfield
Political and economic uncertainty in the U.S. a mixed blessing for Canadian exporters

Recent political and economic turbulence, such as the COVID-19 pandemic, an aggressive China and organized cyberattacks from afar, have made many Americans fear the world outside their borders has become an unpredictable and even dangerous place.

The U.S. federal government has taken note of public sentiment and adjusted its procurement practices accordingly.

For example, President Joe Biden’s tougher Buy American rules in his recently announced US$550-billion infrastructure package and his stated promise to move medical and military supply chains out of foreign countries are raising fears that Canadian companies will be squeezed out of the American government procurement market.

Among Canadian companies that could be affected are those that supply building products used in the construction of U.S. federal government buildings.

According to the tougher terms of the Buy American Act, goods bought by the U.S. federal government will have to contain 75 per cent U.S.-made content by 2029, up from 55 per cent today.

Contractors will also have to provide more written documentation to the U.S. government to prove they are complying with the new content requirements.

Biden also promised to use the infrastructure deal to direct public money to U.S. companies that are building roads, rail lines and broadband networks. And he announced a plan to encourage companies to manufacture some critical goods in the United States rather than importing them.

The tighter conditions of the Buy American Act could also cause Canadians pain by discouraging American companies that have government contracts from buying products from Canadian companies because of the hassle involved in writing up the paperwork to meet the higher compliance requirements.

The nationalistic rhetoric around Buy American could also have a chilling effect if American companies take a pass on dealing with Canada out of fear of somehow breaking the law.

Canadian companies have been hurt in previous rounds of U.S. government procurement protectionism. But they have also won exemptions in the past. For instance, former president Barack Obama gave Canada a pass from Buy America rules in his 2009 stimulus package.

So far, as of mid-August 2021, however, Prime Minister Justin Trudeau had been unable to secure a similar deal with the Americans. 

ConstructConnect’s chief economist Alex Carrick says the U.S.’s turn away from the rest of the world probably won’t have a big or lasting impact on most Canadian businesses.

“Although some companies might be hurt, there are tight, years-long  connections between many American and Canadian companies,” said Carrick. “It’s very unlikely those ties will be disrupted.”

An example of unbroken Canada-U.S. trade is the sale to customers south of the border of value-added wood products manufactured in British Columbia.

Located throughout the province, the value-added wood products industry is concentrated in the Lower Mainland, eastern Vancouver Island and the Okanagan.

It produces hundreds of different products in the following categories: Mill work, cabinetry, furniture, pre-built housing, engineered wood products, log and timber-frame housing and re-manufactured wood products.

“I’ve never seen a stronger market for our products,” said Brian Hawrysh, CEO of BC Wood. “Thanks to strong demand and shortages of supply,  markets have been very strong since the beginning of 2020 and the beginning of the pandemic.”

BC Wood is a not-for-profit trade association that helps its 130 mostly small- and medium-sized members increase export sales.

“We’re heavily dependent on construction markets in the U.S.,” said Hawrysh. “The market for value-added wood products is cyclical, although it is less volatile than the market for lumber.”

Sales of value-added wood in 2017-18, the most recent years for which figures are available, were a little more than $5 billion, and expected to grow to more than $6.5 billion by 2030.

It’s a similar, and just as positive, story in Ontario.

“Demand has gone up and so have prices,” said Mike Baker, CEO of the Wood Manufacturing Cluster of Ontario (WMCO).

The advanced wood products manufacturing industry in southwestern Ontario, where WMCO’s members are located, produce a variety of products: Home, office and institutional furniture; solid wood flooring; veneer; kitchen and bath cabinetry; and mill work.

The advanced wood manufacturing sector in southwestern Ontario has about  1,400 small- and medium-sized companies that employ 22,500 people and generates $5.2 billion in annual revenues.

About one-fifth of what WMCO’s members produce goes to the U.S. eastern seaboard and to Florida.

“The pandemic has turned the supply chain upside down,” said Baker. “Demand will start to slow down again after COVID-19 has disappeared, but it will probably take a couple of years to clear out the backlog of orders.”

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