Cheat sheet: Why project spending could boom during the U.S./Canada trade war

As the trade war between Canada and the U.S. continues to simmer, government is looking to weather the storm by fast-tracking major projects, rethinking shelved ones and ensuring that Canadian companies and workers benefit the most. 

Big spenders: “The government should pay people to dig holes in the ground and then fill them up,” is how John Maynard Keynes, the father of Keynesian Economics put it. He argued that government spending can boost aggregate demand during economic downturns. Infrastructure projects often have a multiplier effect, where initial government spending leads to increased economic activity beyond the initial investment.

Picking up speed: While it’s hard to keep track of the day-to-day trade war updates, it’s safe to say the Canada’s faith in the U.S. as a trade partner and stable ally has been deeply wounded, and officials are looking to make some long-term changes.

• B.C. announced it will fast-track 18 critical mineral and energy projects worth approximately $20 billion in response to the threat of U.S. tariffs
• Alberta Premier Danielle Smith says the tariffs have caused a “sea change” in support for pipelines, including the possibility of an “Energy East 2.0”.
• Quebec Environment Minister Benoit Charette indicated that the government is open to reconsidering TC Energy Corp.’s Energy East pipeline and GNL Quebec’s proposal to build an LNG pipeline and export terminal in the Saguenay region.
• Quebec also says it has plans to accelerate the pace of infrastructure development.

Keeping in Canadian: There’s no point in trying boost the economy with public spending if that money doesn’t reach Canadians. That’s why officials have also been tearing up U.S. contracts and opting for local procurement policies.

• Ontario has banned U.S.-based companies from participating in government procurements as long as U.S. tariffs on Canadian exports are in place.
• Alberta has altered its procurement policies to only purchase goods and services from Canadian companies or countries with honoured free trade agreements with Canada
• The B.C. government and its Crown corporations say they will buy goods and services from Canada and other countries first.
• Industry Canada has been directed to prioritize the funding of projects that use predominantly Canadian steel and aluminum.
• Toronto has proposed procurement changes that would limit construction work under $8.8 million to Canadian companies.

Not our first rodeo: Franklin Delano Rosevelt’s New Deal is one of the most famous North American examples if this kind of policy. But we have some closer to home and in our more recent memory.  

• 2008 financial crisis – The federal government implemented a significant fiscal stimulus package in the 2009 and 2010 budgets, with 40% of it going towards “shovel-ready” infrastructure projects.
• COVID 19 – The government launched various infrastructure initiatives as part of the economic recovery plan. Priorities included seniors’ health care, ex-urban broadband, clean transit, and clean energy projects.