Canadian Manufacturing

Top issues to watch heading into the US election

Trade policies, economy and tax reforms are key concerns for Canadian manufacturers


With the U.S. presidential election rapidly approaching, Canadian manufacturers should be paying close attention to the candidates’ trade policies, according to a panel of experts.

Speaking during a Canadian Manufacturers and Exporters (CME) webinar about how the U.S. election results will impact Canadian manufacturing, three experts agreed trade strategies supersede even the state of the U.S. economy.

“Clearly, no matter who wins, I think there’s going to be a desire for a very strong North American manufacturing strategy,” Campbell’s Soup Company vice-president of government affairs Kelly Johnston said.

In what many consider a narrow presidential race—one panelist said it may be the tightest she’s seen in her 25 years in Washington—manufacturing has taken centre stage, with Republican candidate Mitt Romney and incumbent Democrat Barack Obama both pushing the topic aggressively.

“The last two years here in the United States, the manufacturing sector has been the political darling for both camps,” said CME’s special advisor to the president and CEO on U.S. affairs Birgit Matthiesen. “Everyone wants that photo-op on the production floor.”

Trade agreements

With studies indicating manufacturers on both sides of the border are looking for the development and implementation of a reciprocal agreement on regulatory trade issues between Canada and the U.S.—more so, even, than a Trans-Pacific Partnership—panelists said it would be an important step in the right direction.

“Looking at my own company, it is not easy to navigate the different rules (and) procedures,” Johnston said. “Even something as simple as carrots in Canada versus the U.S.”

Making cross-border trade easier would be beneficial to manufacturers from both policy and cost perspectives.

Tax reforms

While Matthiesen said there has been a lot of talk about manufacturing issues in recent years, there will be more action when U.S. corporate tax reforms take the spotlight.

While any tax reform would be a Congressional move, Matthiesen reminded attendees both candidates have promised to work on such restructuring if elected.

“Whatever the rate is, Canadian manufacturers will want to make sure they are as competitive,” she said.

The main sticking point here for Canadian firms, according to Matthiesen, is what any reforms would do to bring manufacturing back to U.S. soil, including loopholes and incentives.

‘Fiscal cliff’

“Basically we’re looking at a disaster of government policy coming up in the New Year,” Maclean’s magazine Washington bureau chief Luiza Savage said of the much-discussed ‘fiscal cliff’ scenario, which involves the expiration of the Bush tax cut schedules, plus across-the-board government spending cuts that were put in as part of the ‘raising the debt ceiling’ deal.

According to Savage, the fear is a combination of tax hikes and spending cuts will deal a potentially devastating blow to the economy, possibly sending the U.S. spiraling back into recession.

“It’s really kind of a horror scenario,” she said.

Another area tax reforms would likely wreak havoc, according to Johnston, is the investment market, where inflated levies on dividends would whittle away at incentives to buy shares in publicly-traded companies.

“For a manufacturer like Campbell’s Soup, which happens to be a public company, the tax rate on dividends goes up to a maximum of 43 per cent … so you’d see a real disincentive for people to invest in public companies,” he said.

‘Buy America’

The so-called ‘buy America’ policy may be worrisome to some Canadian manufacturers, according to the panelists.

Not only do Canadian firms need to pay close attention to buy America at the federal level, Matthiesen said, but also at the state level, where more states are using it as their “defacto” procurement policy.

But the notion could be beneficial if changed to a ‘buy North America’ act.

“Do I think there should be a North American procurement strategy or a Canada-U.S. one?” Matthiesen asked rhetorically. “Yes I do.”

U.S. economy

Trade agreements and procurement policies aside, the state of the U.S. economy does take a central position for manufacturers on both sides of the border, which are watching it intently.

“The next four years will determine how quickly the United States moves out of its recession,” Matthiesen said.

Johnston lauded Canada’s economic strength in recent years, crediting its stance on business as a major reason why the nation is surging while many others are slipping.

“Frankly, Canada’s currency is doing well because Canada is a great place to do business,” he said.

“I can’t think of a G20 nation’s economy (that) has done better over the last three or four years than Canada’s,” he continued. “Now you’re starting to see some stories appear in the U.S. press that (say), ‘gee, maybe it’s time the U.S. should learn from Canada’.”