Changes at the moment are coming at all of us from all directions. The reality of one day is not the same as the next. The crisis of this pandemic is disrupting business models completely.
Governments have shut down vast sectors of their economies. Simultaneously, governments in both Canada and the United States have released historic amounts of stimulus – effectively stamping on the brakes and accelerator at the same time. There is overreach, there is underreach, there is calculation and miscalculation.
And we are all of us frantically trying to minimize damage to our health, our savings, our incomes, our businesses.
For businesses right now, that means more dependence on government than at any time in modern history. Government policy has always had significant impact on the economy, but increasingly government commands it. We don’t know how long that will be required.
Canada and the United States have, to a degree, avoided the utter self-isolation imposed by other nations. They have seen to it that our common border has remained open to commerce, preserving supply lines as old as our countries themselves, allowing suppliers and retailers and manufacturers and growers keep shelves filled with groceries and consumer goods.
Now, though, the United States has gone a good deal further.
US President Trump, after weeks of reluctance, has authorized use of the Defence Production Act, compelling industry, if necessary, to prioritize production of medical supplies needed to suppress and ultimately reverse the progression of COVID-19.
The example that’s been in the news is General Motors, which is re-tooling its factories to produce lifesaving ventilators in the United States.
How extensively the hammer of the Defence Production Act will have to be used remains to be seen. But clearly a vast new market for medical devices and protective equipment is opening. And it will be vital for Canadian businesses to have access.
Canadian firms are already demonstrating nimbleness. Napoleon, a firm in Barrie, Ontario, renowned for manufacturing upscale grills, fireplaces and HVAC equipment, has pivoted to producing a range of protective equipment for healthcare workers taking grave personal risks to contain COVID-19.
What all the businesses adapting to this new market have in common will be their customer: government or subsets of government – public and private hospitals, for example, along with private healthcare providers that bill Medicare and Medicaid, the mammoth US public health insurance programs, contractors governments will have to take on to fortify first-responder services. Government is probably the only growing customer at the moment, and this growth simply has no precedent.
The Trump administration now has congressional authorization to spend nearly $2 trillion to blunt the pandemic and prop up the economy. Canada’s initial package is $82 billion. Taken together, that is an almost unimaginable sum, and it’s backed up by the US Federal Reserve and the Bank of Canada, which together control the Canadian and American money supplies.
So, given government’s eagerness to spend, and business’s desire to stay in business, the Canadian American Business Council (CABC) is proposing something that we think will smooth the shift to this new commercial paradigm.
For about 60 years, defence manufacturers in Canada and the United States have quietly enjoyed completely unimpeded access to each others’ markets through two bilateral arrangements: The Defence Production Sharing Program and the Defence Development Sharing Agreement. These programs emerged in the wake of the First and Second World Wars and the Korean War, and they are useful models for fighting the coronavirus war together.
The shared defence programs basically level the playing field, guaranteeing manufacturers, researchers and developers in both countries equal access to defence procurement contracts offered by both the Pentagon and the Canadian military. Trade lawyers call this “national treatment.”
Put more simply, it means Canadian defence contractors are exempt from so-called Buy American provisions in US law.
Buy American clauses have been a significant obstacle for Canadian business seeking to bid for US government procurement contracts. After the financial meltdown of 2008, when Congress unleashed hundreds of billions in loans, contracts and grants, Canada deployed an intense lobbying effort, with only limited success, to secure access to that spending for Canadian businesses.
This time, government will be a source of much larger contracts and revenues. And Canadian business needs a way in. So, the CABC proposes a new agreement – a simple memorandum of understanding, perhaps – based on the defence production arrangements, but focused on the exploding market for medical devices and supplies.
Such an agreement would sweep away the obstructive tangles of international formalities and bureaucracies that frankly have no place in a situation like the one we are all living through right now. Both our governments need speed and flexibility, and so does business.
In fact, it would probably make sense to pause the time-consuming implementation of the updated NAFTA agreement now that it has been safely passed by both Congress and Parliament, and focus instead on satisfying urgent new markets like the one for medical devices.
There is already a considerable foundation for an agreement like the one we propose. Canada and the United States import billions worth of medical devices and pharmaceuticals from one another right now. What CABC is suggesting is that our two governments agree to remove any barriers to expanding that trade, and guarantee national treatment to companies that want to step up.
And one other thing: As hard as it is to imagine right now, we need to think about the rebuild once this pandemic subsides. There will be infrastructure projects and other essential commerce programs created by the stimulus programs. The sudden expansion of demand for medical supplies is just the first significant new opportunity.
Whatever the post-COVID reality, more integration across our border will speed our return to the normalcy we all yearn for. Whatever the demands of what is plainly a new economic reality, Canada and the United States should ensure we deal with them together.
This article is part of the The Coronavirus Pandemic: Canada’s Response special feature.