Canada's Stake in the 2008 U.S. Election

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Appeared in the National Post

Canada's top-three economic interests in the new U. S. administration are as follows: First, Canada has a large stake in a more efficient border for trade combined with a more secure border for the movement of people. Currently, commercial costs for crossing the northern border in terms of time losses are estimated at between 2% and 3% of the value of total two-way trade, which was $567-billion or 67% of our trade in 2007. Canadian demands for lower-cost commercial access to the United States are met by American demands for greater security compatibility in how we manage domestic or homeland security. Therefore, a new bargain on lower-cost commercial flows for greater co-operation in national security will need to be struck.

Second, given the high Canadian dollar in recent years, the growth of Asian imports, the weakening of American consumer demand, the thickening border and, most recently the credit crisis, the Canadian manufacturing sector has experienced its own perfect storm. As parts of the U. S. manufacturing base move to the south and away from the border, the export industry in Canada, which has become an integrated and intra-firm process in leading sectors such as automotive trade, faces a new challenge in how to maintain its comparative advantage.

The Security and Prosperity Partnership talks started in 2005 have fallen below turtle speed in the last two years. Canada needs to engage the United States to start a new negotiation process on creating more product standards compatibility and more regulatory convergence. We need to allow greater economies of scale for our manufacturing and transportation sectors and we need fewer regulatory barriers.

Third, Canadian energy exports to the United States rose from $50-billion in 2002 to over $90-billion in 2007. Canada supplied 16.4% of total U. S. natural gas consumption. It also supplied 17.8% of U. S. crude oil products. Both presidential candidates propose a carbon cap-and-trade system aimed at reducing the emission of carbon dioxide in the U. S. economy. Apart from the many problems such a scheme faces in its own right, Canada is particularly sensitive to arbitrary caps on carbon set in Washing-ton which would directly affect Canadian oil and manufacturing exports without any Canadian say in how this system is constructed. Any disruption in the oil trade because of carbon measures will have a very negative impact on Canada's trade balance and will make the U. S. more dependent on Middle Eastern oil.

How do the U. S. presidential candidates compare on these issues? On the border BarackObama surprisingly plans to spend US$9.8-billion while John Mc-Cain plans only to spend US$1.5-billion. All this added security money promised by Obama will not likely make the border any smoother. Canadians may have the idea that Democrats will be more easygoing on the border, but that is an illusion. Indeed, several Democratic senators and House representatives from border states have demanded more border tightening with Canada in recent years.

On the question of deeper trade integration between Canadian and American businesses, the news from the Obama campaign has been consistently bad. Obama promises to renegotiate NAFTA, to add more labour and environmental conditions and to give tax breaks to companies that invest in the United States. Even if Obama saw the need for more product and regulatory co-operation, his labour and environmental support factions in the Democratic Party would make it a difficult bargain for him. McCain on the other hand, came to Ottawa in the middle of his campaign to affirm the importance of NAFTA and appears more open to the concept of deepening trade relations.

While both candidates want to set up a carbon cap-and-trade system, McCain and Sarah Palin, who comes from an energy-producing state, are at least more aware and positive about Canada's pivotal role in supplying the United States with oil. McCain even mentioned Canada in the last presidential debate, which may be a first.

Throughout this American campaign, Canadians have favoured Barack Obama by large margins. However, if they considered Canada's real economic interests, they would think again.

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