The world’s economy is based on international relations, ideally ones that provide nations with the aid and support that they need to endure the toughest of times.
Canada and the United States of America (US) have been neighbours, allies and key trading partners for a long time. It’s a relationship that—despite having faced some rocky moments in the past—has consistently remained diplomatically strong.
COVID-19 has the potential to disrupt relations between these two partner nations, and any degree of fallout could be paradigm-shifting on a global scale. As the dominoes continue to fall, it will be key to monitor how Canada and the US forge ahead with their business and economic relationship amid unprecedented challenges.
Importing and Exporting
International trade is vital to Canada’s prosperity, driving (or impeding) growth and greatly contributes to its gross domestic product (GDP). Furthermore, exporting goods to other nations keeps many industries productive and profitable.
There is also a trade balance between Canada and the US to consider. If one nation is importing more than it is exporting, the deficit might grow and could result in more stringent tariffs or a sharp decrease in supply. Ultimately, this can stymie an economy and make COVID-19 recovery efforts more difficult.
Recently, the US government imposed tariffs (essentially, a tax on imported or exported goods) on aluminum, which should eventually prompt a counter from the Canadian federal government. This will make certain products—many of which are necessary to produce everyday items—far more expensive.
This could hurt businesses that are already struggling to navigate this pandemic. If certain materials or items become more expensive, businesses will be faced with thinning margins or will be forced to make some tough decisions on how to afford rising costs.
The billions of dollars that Canada is threatening to levy on the US in tariffs could hurt Canadians more than the message they are trying to send. There is word that this could happen as early as this year after a series of consultations on what sectors and products to target.
The border between Canada and the US should continue to be closed for discretionary travel, while still allowing most necessary commercial activity. For instance, all trucking between the two nations should continue for the time being with the only difference being greater restrictions and protocols in place, including more in-depth health questioning.
Border operations and security is one aspect of the relationship between Canada and the US that should be unaffected unless the bottom completely falls out.
COVID-19 has forced countries to be more self-reliant but that hasn’t stopped Canada and the US from ensuring that trade continues to flow in both directions. This is good news for both economies, but the current relationship is somewhat tenuous.
Back in April, the US government enacted the Defense Production Act, which was initially conceived as part of war-time mobilization efforts. In 2020, it’s being used to slow the spread of the pandemic, hopefully, forcing it to reverse course by prioritizing the production of medical supplies.
This means that facilities that normally would not manufacture medical supplies are being required to do so until notified otherwise. This is the type of policy that could impact trade and business relations between these two countries as certain goods will not be as readily available.
Less supply or inflated prices on smaller inventories could cause a ripple effect to spread throughout North America.
The US Market
Like most of the world, Canada is heavily reliant on importing goods from their neighbour. This includes but is not limited to metals, materials, vehicles and machinery that keep our businesses, factories, hospitals, stores and households running.
Additionally, the US regularly imports billions of dollars’ worth of products and materials from Canada. Regardless of the time it will take for the US to get COVID-19 under control, trading between these two neighbours needs to be productive, consistent and undisturbed.
It’s possible that the relationship between Canada and the US completely breaks down. While this would result in a wave of negative consequences, it could also open some interesting possibilities for Canada to strengthen other trade partnerships.
Trade needs to happen even during a pandemic. An unexpected result could be that Canada invests its efforts in forming relations with nations that were previously ignored because of the reliance of US imports.
How other nations deal with COVID-19 could also play a key role in Canada developing new diplomatic bonds. Time will tell what those bonds will ultimately mean.
Whatever happens nothing should impede the flow of medical supplies needed to combat COVID-19 and help frontline workers do their jobs and stay safe. There should be ample motivation for both sides to make sure no roadblocks to healthcare or safety emerge.
It would be unconscionable to use the threat of a public health crisis to strong-arm the other side to get what they want. This is where decades of support and positive relationship building needs to win out over anything else.
A trade dispute between two allied countries is the last thing either country or the world needs right now. As Canada attempts to recover from the economic devastation of COVID-19 and as the US still grapples with its realities while approaching an election, resolution needs to be the priority.
Canadian businesses need to be put at the forefront, and not in the crosshairs of broken diplomacy. This is one situation that all Canadians and Americans must monitor.
Rob Shapiro | Contributing Writer