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At Issue
Falling US Greenback Might Haunt Our Economy
Tuesday, May 13, 2003
At the time of this writing, it looks like there might be life at Navistar International Corp. in Chatham. Navistar, based near Chicago, was to close on July 18. However, it was put on hold after a deal was reached with Canadian Auto Workers officials last week to save the plant if certain conditions were met. It came as a surprise to me. Maybe by this time next week, the conditions for Navistar to stay in Chatham will be clear.You can bet money might have something to do with it. There are some reports that the company is looking at a cash infusion of $30 million to extend its stay in Chatham. Over the last few days there have been ebb and cry for this type of cash to come from the different levels of government. Windsor MP Brian Masse went toe to toe with Industry Minister Alan Rock in the House of Commons over a cash infusion to keep Navistar in Chatham. Something's up. Who knows what it will take to keep those 900 jobs in Chatham.
If you are regular reader of this column, you'll know I stacked up the Navistar closing to "globalization" way back on October 22. My feeling was then and still is the movement of Navistar had everything to do with the forces of economic globalization than anything else. World wide, capital moves to the least cost location. With our trade barriers down, there isn't much to stop it.
But a little money, handed out by government certainly puts a chink in that armour. I'm not necessarily against that type of cash infusion by government. Certainly the other big industry in Chatham-Kent, agriculture, gets a little help from time to time. $30 million depending on how it's handled might look like a good investment five years down the line.
Some of you might say that's "corporate welfare" or something worse. Keep in mind the automotive business is increasingly going that way. The southern United States has redefined itself from a rural backwater to one of the largest manufacturing bases of automobiles in North America. It has been done to a large extent on cash incentives and preferential tax laws. Cheaper labour rates and "right to work" legislation have also helped. So when we finally find out what's happening around Navistar, don't be surprised if some of these things show up.
In the end, though, the key will be how much sense "manufacturing trucks" makes in this new North American economy. The last few months have been extraordinary with regard to some new economic paradigms present in our economy. We all know about the Canadian dollar. It's up over 12% from the first of the year. At the same time, the American economy is sputtering badly. The US greenback is in full retreat. The Federal Reserve in the US is worried about deflation. The question is, what's going to happen next? Will Navistar be able to sell more trucks?
Who knows about the last question? The realities of next week might make that a mute point. With 80% of our exports going to the United States, we need to measure how vulnerable our economic growth potential is to a further American economic turndown. Having a federal reserve cutting interest rates and worrying about deflation certainly doesn't bode well for Canadians shipping into that market.
There are some analysts who say the US greenback's fall is a deliberate policy taken on by Alan Greenspan and the Federal Reserve. Think of it this way. Just as the low Canadian dollar encourages our exports, a weak US dollar does the same thing. The low greenback also encourages the large population of the United States to travel at home. Both of these things help create jobs and foster domestic economic growth. The fall out in Canada is our problem. In the post 9-11 world, the Americans are thinking about themselves.
As Canadians, we should wish them well. Their economic growth has a lot more to do with our greater welfare than the value of our dollar. Remember what I said in an earlier column. According to BMO Nesbitt Burns, a 1 percentage point swing in U.S. GDP growth will prompt a 1.8% swing in Canadian exports, while it would require an 8.4% move in the Canadian dollar to have the same impact on exports. So with Alan Greenspan and the Federal Reserve worrying about "deflation", as Canadians, maybe we should be "shaking in our boots."
Clearly though, our politicians aren't thinking that way when it comes to Navistar. And maybe that’s not so bad. We've weathered these economic storms before. I'm hoping our American friends are just as resilient.
Philip Shaw, farms 830 acres near Dresden, Ontario. He holds a Masters of Agricultural Economics and Business Degree from the University of Guelph and is a well-known commentator on agricultural issues in print, on radio and over satellite in Canada and the United States. In the Chatham-Kent Times, Phil will use his frank and forthright writing style to address political and economic issues from the local to the international stage. He is a keen observer of political life at all levels, reads widely and has travelled the world to gather fodder for his column. See what's At Issue this week.
