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Protection Racket

Posted: August 1, 2014 by Passenger Service: State troopers ride-along with truckers in crash study

If you had a dollar for every time this old adage has been quoted –"those who cannot remember the past, are condemned to repeat it," — you’d probably be able to bankroll the U.S. ‘stimulus’ package yourself and still have enough left over to bail out a Hollywood studio or two

That doesn’t mean, however, that George Santayana’s oft-repeated remark is any less relevant today, especially in light of the U.S. Senate’s $800-billion economic cash infusion, complete with protectionist overtones reminiscent of a similar legislative bomb that helped sink the North American economy nearly 80 years ago.

The much-cited Smoot-Hawley Tariff Act of 1930 cut off international trade — over the warnings of hundreds of economists — in an effort to boost the sagging economy by sourcing only domestic products. The measures, which set off a global trade war, are widely blamed today for igniting the Great Depression and assigning the U.S. to bear a disproportionate portion of the burden compared to other struggling nations.

Just substitute isolationist Republicans for populist Democrats, and doesn’t that episode sound vaguely familiar?

Reminded of all this in late January by anxious world leaders –including our own PM Stephen Harper — President Barack Obama backed away from the stimulus bill’s ‘Buy American’ clause, which effectively bans imported steel and iron products and related raw materials from infrastructure projects receiving money from the aid package. Foreign products would only be allowed if builders show domestic products drive up the costs of a project by 25-percent or more.

The president’s comments that the U.S. "can’t send a protectionist message," and his promises to soften the provision were comforting to Canadian exporters and their cross-border service providers — at least for a while.

 

Shielding away Canadian steel and such goods is not good
news that is already seeing the sector erode in Southern Ontario

Even then, it was clear that the protectionists among the Rust Belt wings of Congress and the Senate and their union backers weren’t going anywhere. Before the ink on it was dry, a bill introduced by John McCain to eliminate Buy American (BA) was brushed off in the Senate by a large margin. Also disconcerting, Obama’s own VP Joe Biden strongly defended the original BA when given a chance to calm down trading partners.

When the Senate wrapped up its final version of the stimulus bill in late February, a revised edition of BA remained, although it’s still unclear how much of it would be watered down, beyond stating that it would be "applied in a manner consistent with U.S. obligations under international agreements."

Some Canadian companies, however, insist they’re already feeling the effects

More recently, as foreign leaders were still digesting the implications of Buy American, another proposal put forth by California Republican Ken Calvert and Illinois Democrat Jesse Jackson Jr. calls for a "trade gateway corridor" fee on all goods

The "Our Nation’s Trade Infrastructure, Mobility and Efficiency Act (ON TIME) — and, yes, that’s its real name — would supposedly go towards upgrading U.S. roads, bridges and port infrastructure along 300 frequently accessed trade corridors and ports of entry.

The fees — to be paid by the shipper moving the cargo internationally — would be set at 0.075 percent of the declared market value per shipment, up to a maximum of $500.

The bill has been sent to committee in the U.S. House of Representatives for further analysis.

Many observers, while admittedly nervous, are hopeful that ultimately Congress and the Senate won’t be able to withstand the full-court press against the provision by businesses, economists and politicians around the world and inside the U.S.

"We are students of history," Caterpillar exec Bill Lane lectured to the media immediately after Buy American was announced. "A major reason a very deep recession turned into the Great Depression was the fact that countries turned inward."

 

Robert says Canadian unions are hurting
Canada more than U.S. protectionists

Channeling the lessons of Smoot-Hawley, the editors at the influential magazine, The Economist, rightfully stated: "…the inevitable retaliation [of BA] would destroy more jobs at exporting firms. And the political consequences would be far worse than the economic ones."

It was Dallas Federal Reserve President Richard Fisher, perhaps, who hit, shall we say, the highest note: "Protectionism is the crack cocaine of economics," he said frankly. "It provides an immediate high that leads to economic death."

Steely Outlook:

Such a law, if it were to happen, would definitely be "devastating for most cross-border Canadian carriers" at a time when southbound lanes are dried up, says Sheila Martin of Stoney Creek, Ont.-based steel hauler, S. Martin Cartage. Payload miles in the steel sector are particularly "out of whack."

Claude Robert, though, the notoriously outspoken president of Boucherville’s Robert Transport, is optimistic that in practice the proposed law likely won’t do what’s advertised.

"I don’t think [Obama] could say anything else these days because the U.S. steel industry is flat on its ass," he says. "The truth is, companies are so [intertwined] and in the end they will buy whatever it is they need for the best quality and price."

In fact, Robert is less concerned with the protectionist drums beating in the south as he is with the state of Canadian productivity. "In the last few years the real problem is that we have never improved our products in terms of efficiencies," says Robert, referring mainly to the lack of concessions made by Canadian unions to help manufacturers be more cost competitive. 

If approved, there’s little doubt the provision would severely hurt Canadian carriers "caught in the whiplash," says Canadian Trucking Alliance (CTA) President David Bradley.

In an interview, Bradley points out that Canada’s struggles to have our concerns heard by the U.S. aren’t all that different than they’ve been in past years. "Isolationism or protectionism is not something new. Nor has it been the exclusive domain of either the Republicans or the Democrats," he says. "It is a constant struggle for Canada to be on the radar screen. That’s the reality of the situation." On the flip side, adds Bradley, often "our own provincial governments are just as protectionist and parochial as the U.S. states."

To that effect, there’s a strong push within Canada — mainly from unions and their NDP representation — to fight back with a maple-branded version of protectionism against the U.S. while at the same time putting more effort towards trade with other nations.

While improving our coastal infrastructure to emphasize overseas shipping is a strategy worth pursuing in a globalized environment, Bradley stresses that foreign markets are dessert, not the main course. "What is Canada’s greatest economic vulnerability — our dependence upon trade with the U.S. — is also our greatest economic asset. "We have no idea how envious other countries are of our close proximity and access to the largest free market in the world."

And it works out pretty well for the Americans too. Considering he campaigned on being more worldly than his predecessor, here’s hoping that on his recent trip to Ottawa the president saw that for himself.

 

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