Skip to main content

Amazon boxes are seen stacked for delivery in Manhattan, New York, U.S.MIKE SEGAR/Reuters

Toronto should be proud that it made the Final 20 in Amazon's version of January madness.

More than 200 other cities, including 11 Canadian wannabes, did not.

That the city is still vying to become the home of the Seattle-based e-commerce giant's second North American headquarters is a testament to Toronto's growing reputation as a hub for technology, and people. From a talent perspective, Toronto has what it takes to supply the 50,000 workers Amazon wants.

Imagine the boost of confidence Amazon's arrival would give Canada, which is struggling to find its competitive footing in the global economy. It would be an affirmation that a small, open and inclusive country can still thrive, even when its exports and its relationship with its main trading partner are under threat.

Unfortunately, talent alone won't win this competition. The hurdle Toronto can't overcome is Donald Trump, and not just because of the U.S. President's protectionist "America First" agenda.

The massive tax-reform package, passed by the U.S. Congress and signed by Mr. Trump in December, is a game-changer. The overhaul of the business-tax regime intentionally creates a disincentive for U.S. multinationals to invest in other countries, expand their value chains and generally integrate into the global economy.

Apple Inc.'s announcement this week that it's repatriating more than $250-billion (U.S.) in profits stored offshore is a harbinger of things to come. The new tax code gives it and other U.S. companies a one-time tax break for bringing cash back home. The company will pay 15.5 per cent, instead of the new 21 per cent federal corporate tax rate, netting $43-billion in savings.

Apple said it intends to use some of the money to build a new campus somewhere in the United States and create 20,000 jobs.

It isn't the only U.S. company sitting on piles of offshore cash. Several major U.S. multinationals – including Microsoft, Cisco and Google-owner Alphabet – have roughly $3-trillion in combined profits parked outside the country, according to The New York Times. For years, many U.S. companies have been keeping profits generated from foreign operations offshore to avoid being taxed a second time when they bring the cash back home.

The tax amnesty changes the calculus, creating a negative for Canada's investment outlook. A new lower U.S. federal tax rate of 21 per cent, down from 35 per cent, effectively wipes out what has been a significant corporate tax advantage for Canada. Canada's federal corporate tax rate is 15 per cent. Provincial taxes can boost that to 27 per cent or more, creating a roughly level playing field with the United States. And state and local governments in the U.S. are often much more aggressive in waiving their share of taxes to attract business.

Anecdotal evidence suggests foreign companies are already looking at this trade and tax uncertainty and deciding it's safer to be inside the world's largest market, looking out. New foreign direct investment in Canada by U.S. and European companies has been on the decline since mid-2016 – "a possible sign of the effects of trade uncertainty around trade policy," the Bank of Canada said in its quarterly Monetary Policy Report, released this week.

All else being equal, the central bank warned that companies may choose to spend their investment dollars in the U.S. rather than Canada to benefit from lower taxes. Speaking to reporters, Bank of Canada Governor Stephen Poloz said investment is already being "delayed or diverted to the U.S."

Canada will have to work much harder going forward to make the country a competitive place to invest and do business.

Ottawa risks making matters worse if it bends to protectionist voices, who want the federal government to block a $1.5-billion (Canadian) takeover of construction company Aecon Group Inc. by state-controlled China Communications Construction Co. Ltd. Saying no would lessen competition in the construction industry, inflate the cost of badly needed infrastructure and send the message that Chinese investment isn't welcome here.

Toronto Mayor John Tory is right when he bragged this week about the city's "talented, diverse and inclusive workforce," and that Toronto is "a liveable, affordable city where everyone can succeed."

The same could be said for other Canadian cities.

If only that were enough in 2018.

Toronto will almost certainly lose the Amazon HQ2 competition. The challenge now for Canada is to ensure it doesn't fall hopelessly behind in the much longer investment race.

Mayor John Tory says no other city in North America has the same 'vibrancy' as Toronto – the only Canadian city still in the running to host Amazon’s multibillion-dollar second headquarters.

The Canadian Press

Report an error

Editorial code of conduct

Tickers mentioned in this story