Wednesday, June 15, 2011
Economic Recovery from Above
Last Thursday the government released two very important economic indicators. The Department of Labor and the Department of Commerce released the latest numbers on the trade deficit of the United States and the unemployment rate. The Bureau of Economic Analysis (BEA) of the Department of Commerce announced on June 9th that the trade deficit declined a total of $175.6 billon in goods and services sold internationally. This number represents a small bright spot in an otherwise bleak economic forecast, and is very good news. Simply put, more exports equals more money flowing into the United States as opposed to flowing out. While imports from Japan have declined, the gap with China continued to grow.
On the other hand, the same day, the Department of Labor announced that the jobless rate climbed to 427,000 for the first week of June, an increase from 426,000. This number once again reflects the sluggish economic recovery and a national economy where the private sector is still avoiding massive new employment. Our great recession will not end until the 14-million unemployed Americans return to work. A solution to our problem will not come from God, or China or even the IMF and World Bank. One route to economic growth may lie with one of our strongest and closest of partners: Canada.
Canada and the United States are forever linked as neighbors. As of April 2011, the United States imported $26 billion dollars worth of goods from Canada while exporting $23 billion.
For two centuries, the border between the two countries remained porous. In an age when “9/11” was only known as the day after 9/10, goods and people frequently crossed the border utilizing communities’ economic comparative advantages. While the population of the United States is distributed all across the country and fairly desolate along the northern border, approximately 75% of Canadians live within 100 miles of the Canadian-American border. The result is a growth of a “border community” in which people on both sides frequently cross to achieve the best deals on consumer goods. In the past, Americans have traveled north for cheaper prescription drugs and Canadians have traveled south to shop in the malls and shopping centers in border towns. This activity highlights the comparative advantage on both sides of the border. Companies also have paid attention to the benefits of the border.
In the northern New York community of Plattsburgh, the Quebec manufacturing company Bombardier moved some of its railroad production south of the border to take advantage of tax incentives. If you ride on a railcar of the New York MTA, it most likely started its life in Canada and completed in New York State. This is only one example. The community has taken advantage of its proximity to Montreal, Quebec and has labeled itself “Montreal’s American Suburb.” The community realized that its proximity, and lower tax rates, makes the region a bastion for enticing Canadian companies to move south of the border. Montreal is home to much of the Canadian pharmaceutical industry. Some of these companies could be enticed to move south to New York or Vermont. They could be the ignition for restarting the American industrial engine. In turn, in many American border communities, the nearest population centers are across the border in Canada. Thus, in some instances Canadian cities could benefit from employed Americans going to Vancouver or Montreal to make consumer purchases.
The first step, from Fort Kent, Maine to Point Roberts, Washington, is that these communities need to develop plans for enticing Canadian companies to relocate across the border. The Canadian and American economies’ high level of interconnectivity means that developments on one side of the border will have spill-over effects across the border. Today there are many security impediments to transporting good across the border, but this should not be an impediment for trade. Nurturing the Canadian-American relationship, often neglected in Washington, D.C., is one avenue for jumpstarting the American economy in a region of the United States suffering from long-term unemployment.