Thursday, April 28, 2011

 

DEADWEIGHT LOSS

Why is the Federal Government ready to front the State of Michigan close to $600-Million for its share of building a second Windsor-Detroit bridge?

Michigan's economy is flat-broke and commercial interests on the Canadian side of the border are so critically important that there is virtually no other choice. Lest I digress...I say "virtually" no other choice, because the private owner of the Ambassador Bridge, Detroit billionaire and right-wing conservative Matty Moroun, is ready and willing to build his own second bridge. In fact Mr. Moroun has been running a series of "attack ads" against the government's project on American television, including Fox News.

"Thickening" of America's border with Canada and the Harper Government's efforts last winter to blunt its effect with a "Perimeter Security" arrangement have remained pretty much under the radar during the current Federal Election campaign. It may be that the issue was pretty much a non-starter despite vocal critics dubbing it at the time as an attack on Canadian sovereignty.

Since the near collapse of the American economy in the "Great Recession of 2008" there's been an interesting seesaw effect in the balance of trade between our two nations. Though it remains the most significant exchange of trade and services on the planet; business between the United-States and Canada dropped to $430-Billion in imports and exports in 2009 from a pre-recession high of about $600-Billion, and shot back up to $525-Billion in 2010. It's hard to predict just how the meteoric rise of the Canadian "Loonie" to $1.05 USD will affect trade matters through 2011; but VISA Credit Cards USA reported just last week that Canadian cross-border shoppers accounted for a multi-billion dollar increase in its bottom line since the start of the new year.

Back at the Detroit River bottle neck, a recent study published by two southwestern Ontario Universities (University of Waterloo and Wilfrid Laurier University)concludes that the costs of border crossing delays can be startlingly large especially in the automobile sector. For example, it's estimated that the parts and sub-assemblies of automobiles which criss-cross the border several times during production, adds about $800 to the final cost of each automobile. In contrast imported cars from overseas only pass through Customs once; on entering the country.

When it's all put together this loss of economic efficiency known as "deadweight loss" may be sufficiently large to offset Canada's economic gains produced by the North American Free-Trade Agreement (NAFTA). The cost of border delays estimated by the study at Waterloo and Wilfrid Laurier may be as much as $30-Billion per year...and the Province of Ontario is its biggest loser. The long-term effect is that potential investors are looking elsewhere when it comes time to open businesses that rely on cross-border shipments.

National "orange surge" or not; polls and pundits predict that it will be difficult on Monday to unseat the two Windsor area N.D.P. Members of Parliament, Brian Masse (Windsor West) and Joe Comartin (Windsor-Tecumseh), both of whom are strong supporters of the Harper Government's plan to pay our share of the bridge cost, and to advance the Americans a major share of their costs. Windsor's economy and that of the neighbouring Essex Riding, held by Conservative MP Jeff Watson, have been devastated by the economic downturn in the United-States and the still very fragile recovery of the automobile assembly sector in the Detroit area.

Unless and until car parts, automobiles, lumber, oil and gas; pretty much everything else Canada produces can magically cross the Atlantic or Pacific Oceans as easily as trucks and trains cross into the United States of America; our economic fate is in American hands...a somewhat shaky prospect which may explain why "border issues" have remained off of the election trail.

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