Fraser Forum

Trade war with U.S. states would hurt Ontario economy

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Last week, Texas lawmakers passed a protectionist “Buy American” bill, which would require public construction projects in the state to use iron and steel manufactured in the U.S. The bill, which now only requires the signature of the governor, was publicly criticized by Ontario Premier Kathleen Wynne who claimed that the “discriminatory” bill would severely hinder the trade relationship between Ontario and Texas.

The new Texas bill is just the latest evidence of a shift toward protectionism in the United States. In April, the state of New York scrubbed a “Buy American” provision from its budget after a concerted lobbying effort by the Wynne government. Ontario officials are also keeping an eye on emerging “Buy American” movements in California, Illinois and Pennsylvania.

In a statement released last week, Premier Wynne warned that Ontario was “prepared to respond strongly” to Texas’ protectionist bill and could consider implementing its own restrictions on products from states with “Buy American” legislation.

The prospect of a tit-for-tat escalation of trade restrictions between Ontario and a large American jurisdiction, and the rise of protectionist sentiment in the U.S. generally, should worry Ontarians. The free flow of goods across the Canada-U.S. border is vitally important to Ontario, and a thicker border would therefore be bad news for Ontarians.

Consider that in 2015, the U.S. was the destination for 81 per cent of Ontario’s exports and the source of more than half its foreign imports. The Wynne government estimated its trade volume with Texas alone amounted to US$12 billion last year. As such, the creation of significant new barriers to the free exchange of goods between Canada and the U.S. could have severe negative consequences for both countries.

As Canadian jurisdictions including Ontario try to decide how to respond to the rise of U.S. protectionism, they should be cognizant that retaliatory tariffs of our own may actually further hurt our economy by restricting consumers and businesses from access to American imports. Access to imported goods is beneficial for the Ontario economy in several different ways. Imports offer consumers access to cheaper goods and allow businesses access to raw materials and intermediate goods that can be used to manufacture final products.

While it’s possible the threat of retaliatory policies may lead American jurisdictions to reconsider their own movement towards protectionism, it’s important to recognize that actually implementing such policies could, again, hurt Ontarian consumers and businesses.

The economic benefits of free trade are widely documented. Political leadership in Ontario and Canada generally should clearly articulate the benefits (for both countries) of free trade with the U.S. An escalation of trade restrictions between Ontario and various American states would be bad news in the long run for all jurisdictions involved.


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