How the Canadian economy can continue to benefit from U.S. battle with China

When Jerome Powell, the world’s most powerful central banker, speaks to the media this Wednesday, nobody expects him to say that the soaring inflation we are seeing has forced him to hike rates.

Despite last week’s data showing that inflation has risen to levels from year to year unseen for 13 yearsMost economists assume that the US Federal Reserve is not yet ready to end the low interest rate incentives for an economy that has once again become an engine of North American and global growth.

Some fear that Canada will benefit from the hot US economic recovery due to the US Buy America strategy, but a number of developments over the past week show that this country can continue to benefit from meeting the needs of its larger neighbor.

However, with the US focused on battling China for future industrial and technological supremacy, some experts here say Canada needs to improve its industrial policies if it is to take full advantage of the coming technological renaissance.

Another type of stimulus

An even stronger type of economic stimulus could brighten North America’s longer-term economic outlook after a new bill passed through the normally-divided Washington Senate last week to counter China’s increasing technological strength.

The smooth running of the Innovation and Competition Act with support from both Senate Democrats and Republicans – though they haven’t made it through the Democrat-dominated House of Commons – signals a big step beyond trying to overdo the economy with low interest rates, as central banks have done . Instead, the new focus is on targeting the two fundamental drivers of economic growth: innovation and productivity.

Government investment in China’s advanced economy has challenged the US on a number of fronts, including technology, and the US is trying to fight back. (Jason Lee / Reuters)

Essentially, they want to defeat Beijing at its own game by using hundreds of billions of dollars in government money to invest in key industries and technologies to keep the US from falling behind China’s latest technological leap forward.

“It really is a bill to keep the US at the forefront of technology in competition with China, which it sees as its opponent,” said James Meadowcroft, a longtime Canadian industrial policy advocate. Meadowcroft, a professor at Carleton University in the School of Public Policy and Administration, is the lead author of a report on the subject for the private sector Transition accelerator.

With regard to Canada, Bank of Canada Deputy Governor Timothy Lane noted last week that there are early signs that adapting to the rigors of the pandemic has already resulted in business innovation by redirecting efforts to Canada’s digital economy become.

“There is a good chance that productivity growth, a major driver of potential, will be stronger than expected and give the economy more room to grow before inflation becomes a concern,” he said tells a virtual meeting the western Canadian financial advisor.

And while Lane said there is increasing evidence that post-pandemic innovations are sprouting on their own in response to market forces, that is no longer good enough for the Biden administration. Not even for the US Senate.

“No more swear words”

As reported by CBC Washington correspondent Alexander Panetta, when the Innovation and Competition Act Action becomes law, it could mean serious political and economic demands on Canada because it will not only use government funds to stimulate investment, but will also require its allies to reduce the use of Chinese technology.

James Meadowcroft, a Carleton University professor who recently wrote a report for the private sector transition accelerator, said Canada must follow the example of the United States in developing a coordinated industrial strategy. (Carleton University)

That will take some tough decisions from the Canadian government.

But on the phone, Meadowcroft said Friday that a decision was obvious. If Canada wants to sit down at the big children’s table where economic decisions are made, the country must develop its own industrial policy.

He said industrial policy – crucial in Canadian history to things like building a railroad through Canada and opening up the tar sands – fell out of favor during the Thatcher and Reagan years. But it is “no longer a dirty word” and is coming back in vogue, especially as a tool to combat climate change.

In fact, it never really went away, even in the US, where many industries continued to be supported under the guise of military spending.

Where have the jobs gone?

In Canada, the government has already targeted projects for special government support, as it did last week $ 1.3 billion investment in a hydrogen plant. But Meadowcroft says Canada must follow the US lead and develop a broader coordinated strategy.

One example he cites is the electric vehicle industry, which Canada is already gaining a foothold in, with the minerals, battery technology, and automotive tradition, not to mention plenty of low-carbon electricity, where Canadian champions could so easily be bought or adopted from larger foreign players.

“But bringing all of this together to build an industrial base requires strategic government intervention,” Meadowcroft said. “Otherwise we’ll miss the opportunity and wake up 15 years from now and say, ‘What happened to these auto jobs?'”

Follow Don Pittis on Twitter @don_pittis

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