Canadian exporters face a stark choice in a "Buy American, Hire American" world: Shift production to the U.S. or lose the business.
Vancouver bus maker Grande West Transportation Group Inc. recently struck a deal to assemble its transit buses in Atlanta to meet strict U.S. rules on federally funded transit purchases. Those rules require that at least 60 per cent of the content and final assembly be done in the United States.
"Whatever they need us to do we'll do," company spokesman John LaGourgue said.
Corporate decisions like this could become a lot more common in Canada as U.S. President Donald Trump toughens up protectionist purchasing rules. He signed an executive order Tuesday that directs government agencies to look for ways to boost the purchase of American products in federal contracts. The order also directs changes to the popular H-1B temporary visa program used to bring foreign workers to the United States to fill high-skilled jobs.
It all means more business investment in the United States, and presumably less in Canada. The threat of a much more protectionist United States – the destination for nearly three quarters of Canada's exports – is already having a chilling effect on business investment in Canada. Many companies are either delaying investments or shifting production to the United States as they nervously watch what the Trump administration is doing.
One key concern among Canadian companies is that they are effectively shut out of U.S. infrastructure projects, while U.S. companies bid and win work on Canadian projects.
Decast Ltd., a Canadian company that makes precast concrete tubing for water mains and other infrastructure projects, laid off 24 employees last week after U.S. companies were awarded projects by Halton Region, west of Toronto.
"This has had a direct and real impact on our business," said Jim Tully, executive vice-president of Decast, which employs about 440 people in Utopia, Ont., north of Toronto. "This is supposed to be Canadian tax dollars spent on Canadian infrastructure hopefully by Canadian firms, but [we] seem not to look after our own very well."
Decast is now considering building a manufacturing facility in the United States so it can bid successfully on U.S. projects, he said.
"Companies do not have time to wait for these issues to be resolved," pointed out trade lawyer Dan Ujczo of Dickinson Wright in Columbus, Ohio. "They will set up shop in the U.S. if the contract is worth the effort, regardless of any additional inefficiencies."
Grande West's Atlanta subcontractor is spending $1-million (U.S.) to upgrade its plant to build its Canadian-designed Vicinity bus.
The company says it may also use its Atlanta subcontractor to assemble buses for Canadian transit authorities. Roughly 20 per cent of the content in Grande West's U.S.-built buses will be Canadian and another 15 per cent from China, where the chassis and frame are assembled. Most key components are American, including the engine, transmission, seats and air conditioning equipment – as required by existing U.S. government rules.
Bank of Canada Governor Stephen Poloz warned last week that U.S. protectionism is the No. 1 threat facing the Canadian economy. The central bank pointed out in its quarterly Monetary Policy Report that the prospect of a more restrictive trade environment is already weighing heavily on business investment in Canada.
Canada is not the target of U.S. moves, but it could become one if, for example, foreign steel that is removed from the U.S. market finds its way back to that market via Canada, warned Barry Zekelman, executive chairman of Zekelman Industries, which owns Atlas Tube of Harrow, Ont., and operates 16 U.S. factories.
"I support Buy American," Mr. Zekelman said Tuesday. "I would support even more 'Buy North American'– being Canada and the U.S."
The federal government needs to enforce trade decisions that go against other countries that are dumping products into Canada, he added.
Ottawa should be telling the White House that it's willing to retaliate – just as the Ontario government did recently in the face of New York State's aborted attempt to impose sweeping Buy American measures, said Joseph Galimberti, president of the Canadian Steel Producers Association.
"The Trump administration and the United States generally need to understand that there is a consequence – a fundamental business opportunity consequence – in proceeding in this manner," Mr. Galimberti said.
The U.S. government may be targeting China and Russia with Buy American policies, he said, but there is no opportunity for U.S. steel companies to win business on infrastructure projects in those countries. "There is a very tangible economic opportunity for American steel in Canada" with Canadian infrastructure programs, he said.
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