American protectionism: cause for concern?

Will Quebec business owners benefit from the pick up in the US economy, despite the rise of American protectionism? Francis Généreux, Senior Economist, Desjardins Economic Studies, says that Canada can expect protectionism under President Biden to be less adversarial than it was under Trump. Chances are good that the Canadian economy will come out on top.

An executive order signed in January 2021 amends the Buy American Act so that American businesses and products are given preference in US federal government procurement, which tends to impede Canada-U.S. trade.

“However, Canada has undeniable advantages. President Biden is making a big push for green energy, expertise we’re known globally for. The US will need us, and that gives us considerable bargaining power.” - Francis Généreux.

What is the Buy American Act?

The Buy American Act was passed in 1933 and applies to direct purchases by the US federal government valued at more than US$10,000. The new executive order tightens these measures, aimed at reopening the manufacturing sector and protecting US jobs. The new iteration of the Buy American Act is meant to create a clearer, more transparent process of awarding public contracts, close loopholes and make it easier for smaller businesses to win these contracts.

“It’s not unreasonable for President Biden to favour the US economy in these difficult times, especially since he campaigned on that,” says Généreux. “However, he’s also shown that he wants to establish trade partnerships to confront the challenge from China.”

What about Canada?

Historically, the Canadian government has been very open to international trade. “This makes sense, since we have a small economy and our market isn’t big enough to sustain itself,” says Généreux. “So we have many free trade agreements that have opened the market to international players. Our local procurement policies respect established free trade agreements and international trade rules. However, the pandemic has gotten Canada, like every other country, thinking about the need to prioritize the local economy.”

Anticipated economic consequences

Généreux believes that American protectionism won’t have much of an impact in the short term. Other than tightening Buy American Act rules, which Quebec businesses were already used to working with, no other significant measures have been put forward.

“Biden is proposing a major infrastructure plan that will significantly increase government spending,” he says. “Our businesses could definitely have benefitted more from that without the new executive order. It’s less advantageous in terms of business opportunities, but it makes sense to favour the local economy.”

Current trends

For now, American protectionism is more focused on China. At the same time, COVID-19 has created uncertainty that has naturally led to some markets closing. “The US economy will experience the most growth in the coming year because of the Biden administration’s ambitious vaccination plan and relief measures. We can expect very strong growth, which Canada will benefit from.”

The green economy recovery that Biden is pushing for, with a major environmental plan to the tune of over $US2 trillion, will allow Quebec to position itself very well. “Green energy is a very strong niche where our businesses have distinguished themselves on the global stage. There will be great opportunities for them to take advantage of.”

Généreux says that despite free trade agreements, American protectionism is still a constraint for Canadian business owners. “Even slightly stricter US rules, as we could see under the Biden administration, are never good news. We saw with Trump how these types of measures can create uncertainty for Canadian businesses. It’s always a good idea for businesses to diversify their international clientele. There’s a lot more to gain in a more open economy.”

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