Is America bringing us down?

The U.S. is an anchor around Canada's neck, but our best bet might be to grasp it even tighter.

Canada's economy should be blazing by now. The country this year recouped nearly all the jobs lost during the recession, saw hikes in consumer spending and business investment and had some of the best economic growth in the industrialized world. Things would be going gangbusters, if not for those damn Yankees.

Canada currently finds itself tethered by its southern border to an economic anchor. The United States still grapples with near double-digit unemployment rates, surging foreclosures and sputtering consumer spending. America's travails slashed Canada's export market and blocked the chance for "an absolutely rip-roaring recovery," according to Douglas Porter, deputy chief economist with BMO Capital Markets.

Canada's largest trading partner is dragging it down. But the United States' economic woes don't just mean a weak market for Canadian goods. The dismal outlook has inflamed America's protectionist tendencies. It took more than a year for Canada to negotiate a waiver of the "Buy American" provisions contained in America's $787-billion stimulus package. Less than a month after that dispute was resolved, 28 members of Congress introduced a bill calling for the scrapping of the North American Free Trade Agreement. The situation is so worrisome that the Canadian Council of Chief Executives has enlisted Gordon Giffin, the former U.S. ambassador to Ottawa, as its envoy in Washington. The message from the U.S. is clear: Americans can't afford our goods right now. Even if they could, they'd rather buy American.

"It's that feeling of — I hate to say 'attacked' — but that the United States has to look inward for solutions," says Birgit Matthiesen, a Washington-based adviser to the Canadian Manufacturers and Exporters (CME).

As America pulls up its drawbridge, it seems an ideal time for Canada to pursue other trading partners. Everyone knows that emerging markets like India, China and Brazil are where the future lies anyway, right?

But for Canada, the inescapable fact is 73% of our exported goods go to America. Canada's annual trade with India represents less than two days of trade with the United States. Trade with the European Union, Canada's second-largest trading partner, is one-ninth of what crosses the U.S. border. Diversification is a good idea, but it doesn't offer a real alternative to the American market. "Nothing can replace our trading relationship with the United States," says Peter Van Loan, the federal minister of trade. "Growth in other places is a plus, but an American economic recovery is very, very important for Canada."

Canada's interests lie not in divorcing the United States but in wooing it again. There are still too many regulatory differences, too little policy collaboration and too few champions of trade liberalization, business leaders say. Canada can't cut away the millstone around its neck; it needs to hug it even closer.

In separate interviews on different days, both Manley and Van Loan said they expected America will remain Canada's top trading partner for the rest of their lives. The rhetorical coincidence emphasized how long-term Canada's thinking about the relationship must be. The United States economy is currently a drag on Canada; its policies decidedly protectionist. But by geographic imperative, the relationship will far outlast the few years of an economic downturn. "We're not floating in the middle of the Pacific Ocean," says Manley. "We're joined at the hip with the United States." Canada can dream of rich new trade with distant lands, but our future remains linked to the United States. If not by choice, than by the imperative of geography.

By James Cowan, From Canadian Business magazine

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Saverio Manzo

About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly.
In addition, I truly belive in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example.