Sunday, September 4, 2011

Will the U.S. economic downdrift bring Canadian economy down?

United States is politically deadlocked. No matter what President Obama proposes to the joint session of Congress on Thursday, most Republicans are not likely to back him.

The Tea Party segment of Republicans in the House (a significant number) is working on one item agenda only - get rid of Obama. The have made their disdain known openly for an African American President, calling him Hitler, anti American, the Other Guy and several such unfortunate names. They are hell bent on this, even if it destroys the U.S. economy, which was quite obvious during the recent debt negotiations.

This gridlock is damaging U.S. economic recovery. A large number of jobs that should have been created after the 2008/9 recession ended, have not been created. The unemployment picture is depressing as 14 million employable workers are not employed. Unemployment amongst teenagers runs at 25.4%, African Americans 16.7%, Hispanics 11.3% and whites at 8%. Many economists agree that current unemployment rate of 9.1% will come down to around 8.9% by end of year and to a low 8% in 2012, but that still leaves many million unemployed.

U.S. is Canada's largest trading partner and any serious impact on U.S.economy or buying power of its citizens will eventually filter through to the Canadian economy. While Canada's economy is still going through a slow recovery, it has been spared from a substantial impact, primarily because Canada's financial system proved to be the best in the world at a time a major financial crisis. But, if the U.S. economy continues a down drift, Canadian economy could stagnate.

It is important to insulate Canadian economy from such an eventuality. Alternative markets have to be found for its products in order to diversify exports and reduce dependence on U.S. Fortunately, Canada is a resource rich country and developing economies are in need of resources. Rising exports to China have helped offset some of the impact of declining U.S. orders.

The Canadian softwood lumber industry, which has been in a running battle with the U.S. Government and some of their intransigent politicians for years, has taken a leap forward by going to China, building houses and showing Chinese construction companies how they can build houses faster and cheaper by using lumber instead of concrete. This has resulted in creating demand for Canadian lumber in China, so much so that Canada is now exporting almost as much (if not more)lumber to China than the U.S. Other Canadian industries need to learn from this experience and explore markets around the world. The oil industry also needs to diversify its exports. An oil pipeline from Alberta to an off shore oil terminal on the Pacific Coast would make it considerably easier to export oil to China and other countries.

One good thing that has happened in this financial crisis is that Harper Government has grown up. From a reluctant, lukewarm attitude towards China in earlier years, now a more confident majority Harper Government has made progress. After a highly visible and successful visit by John Baird, Canadian Foreign Minister, Prime Minister will soon be off to China to increase trade opportunities. His recent visit to Brazil and other South American countries will also have positive impact on Canadian companies wanting to venture into those markets.

One market that Canada has not made major inroads into is India. This enormous market is very different than any other. India is not yet ready for large quantities of softwood lumber, not probably for another 10 years. Its infrastructure is abysmal and Canada could help plan and build roads on a fast track basis all over India. India is also in need of building small houses to replace slums and shanties. Canadian companies specializing in pre-fab construction could possibly set up factories in India to produce these in large quantities, so the Government and private sector, start replacing shanties on an emergency footing. There are probably countless other opportunities, for which the Indian market needs to be studied thoroughly and patiently, rewards will follow.

Canadian economy need not go down with the U.S. economy as long as it finds alternative markets and Canadian Corporations open their horizons to exploring new markets. The structure of Canadian Corporate Board also needs to be diversified to leverage enormous international talent available within Canada. The U.S. economy will ultimately recover and that could only give the Canadian economy a further boost.

No comments: