Canada needs more ‘economic patriotism,’ like the United States

TORONTO—If the world needed a reminder of what it is up against, it came this past week with the announcement by a South Korean firm Hanwha Q Cells that it will invest US$2.5-billion to build an entire solar-manufacturing supply chain in the United States. Not only is it the largest solar investment ever in the U.S.; it is also a direct consequence of massive subsidies and protectionist measures under the Biden administration’s Inflation Reduction Act. How can Canada compete? It’s not just a question for us. It’s a question for the European Union, Japan, and other Indo-Pacific countries, and the developing world. “Under my leadership, the United States can and will lead the world in manufacturing once again,” U.S. President Joe Biden said in a Jan. 11 statement. But will the U.S. do this at the expense of other countries, with plans to spend literally hundreds of billions of dollars in subsidies, impose strict U.S. content rules for projects that access American incentives, and use trade policy to hamstring competitors? And if so, will its competitors all be forced to engage in a subsidies war and increase local content requirements as the U.S. aggressively pursues what it calls near-shoring—a euphemism for protectionism—and what can become a downward spiral on trade restrictions? The decision by Canadian company Lion Electric to build a factory in the United States, for example, was based on American plans to eventually require 75 per cent U.S. content, up from 55 per cent now, for school buses sold under Buy America requirements. This policy will force Canadian firms to shift activities south of the border if they want to compete in projects where there is U.S. government funding, like in infrastructure, for example. As it is, Canada is already having to spend billions of dollars to attract multinationals to invest here, with the electric vehicle and clean-tech industries as prime examples. Moreover, Finance Minister Chrystia Freeland has promised many billions of dollars more, to be outlined in her 2023 budget. She has already introduced a $6.7-billion clean-tech tax credit in response to U.S. incentives. “Significant additional actions will be announced in Budget 2023,” Freeland said in her fall 2022 fiscal update. As well, we are promised improved tax incentives for research and development. Yet, compared to what the Biden administration has accomplished since 2021, Canada appears to be moving at a snail’s pace. For example, though first promised in the 2022 budget, we still lack details on how the Canada Growth Fund or the Canadian Innovation and Investment Agency will operate. And while the U.S. is heavily focused on reinvigorating its manufacturing industry, what we have been promised are “consultations” to develop Canada’s advanced manufacturing competitiveness. But this is not just a matter of money or protectionism. It’s also about vision and strategy to build Canadian companies with their own proprietary technologies that enable them to compete in world markets, while creating jobs and wealth in Canada, because of their unique capabilities and intangible assets, including intellectual property, despite U.S. or other foreign protectionism. Much of our activity today has the effect of strengthening foreign corporations, either by writing big cheques so they will invest in factories or mines here, or in encouraging R&D branch plants of foreign companies that use Canadian talent and Canadian university research to strengthen their parent-company competitiveness. While this creates jobs here, the wealth creation flows outside Canada to the foreign parents. At the same time, we have made it far too easy for foreign corporations to buy up our most promising tech companies. Whether proposed new rules to protect intellectual property are intended mainly as another anti-China initiative or whether they will apply to U.S. multinationals, for example, remains to be seen. It will also be important, under Canada’s defence procurement policies, to ensure that Canadian-controlled companies benefit. When Canada buys F-35 fighters or any other defence products from other countries, there is a requirement for a 100 per cent offset to be spent in Canada. Rather than just see foreign aerospace and defence suppliers expand activities in Canada, we need a strategy that sees a large share of offset spending go into Canadian companies, either existing players or promising start-ups. One problem is that it is hard to have confidence that our government possesses the analytical skills to understand and act on Canada’s strategic needs. That is the extent to which the government relies on outside consultants to carry out needed research and analysis, and make policy recommendations, rather than building those skills as much as possible in-house. This carries over into international negotiations as well. For example, the recent North American Leaders’ Summit in Mexico City declared that “the three countries will seek to forge stronger regional supply chains, as well as promote targeted investment, in key industries of the future such as semiconductors and electric vehicle batteries, which will be critical to advance electric vehicle development and infrastructure.” But will the U.S. accept that some of the technology and participants in such supply chains serving the North American market should be Canadian companies and that they must be able to operate freely in the U.S.? Will Canada even raise this issue? Likewise, the declaration highlighted co-operation in critical minerals. “Each country,” it said, “will review and map out existing and potential reserves of critical mineral resources in the region.” But does the U.S. accept that a Canadian priority must be the processing in Canada of critical minerals found in Canada, and that much of this should be done by Canadian companies? Will this be a Canadian requirement, as far as possible? The U.S. is dressing up its massive programs to boost the its economy, including its increasingly protectionist mentality, as “economic patriotism." Perhaps then, if this is the game they are playing, perhaps we need more of our own “economic patriotism” as well. David Crane can be reached at crane@interlog.com. The Hill Times

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Canada needs more ‘economic patriotism,’ like the United States

The United States is dressing up its massive programs to boost the U.S. economy, including its increasingly protectionist mentality, as 'economic patriotism.' If this is the game the U.S. is playing, maybe Canada needs more 'economic patriotism' too.

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