Not a fiscal cliff, but latest U.S. budget quarrel could impact Canada: Flaherty

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Finance Minister Jim Flaherty

OTTAWA - Jim Flaherty says he is concerned about the impact on Canadian exporters from the latest budget battle in Washington, and appealed to U.S. lawmakers to bring to an end the drumbeat of confidence-sapping fiscal crises.

The finance minister told reporters Friday he believes the so-called sequestration crisis — involving about $85 billion in spending cuts — will be a tempest in a teapot in terms of U.S. economy.

But the potential for tie-ups at the Canada-U.S. border if guards are affected could slow trade routes between the two countries and have an impact on Canada's economy, he said.

"I do know the size of the U.S. economy, I know the size of our trading relationship," he explained.

"It concerns me a great deal to hear some of the speculation about border delays because we have the largest trading partner(ship) in the world, and a lot of the trade moves by border crossings on land."

Flaherty said he could not put a hard figure on the potential loss to trade, but said Canadian and U.S. policy-makers will need to keep any disruptions at a minimum.

U.S. homeland security chief Janet Napolitano projects the cuts could affect the equivalent of about 5,000 border patrol agent positions, many on the Canada-U.S. border. As well, the equivalent of 2,750 inspectors is on the chopping block.

The U.S. Customs and Border Protection agency estimates the cuts could result in waits for as long as five hours at larger ports of entry, most of them in Ontario, Quebec and British Columbia.

The Canadian Council of Chief Executives and the Canadian Manufacturers and Exporters group both warn about repercussions to trade.

In a memo sent to its members this weekend, the CME noted there’s no evidence that any border contingency plan has been worked out between the U.S. and Canada.

Flaherty appeared more frustrated with the ongoing political squabbling over budget issues in the U.S., mostly due to the inability of Democratic and Republican lawmakers to come to an agreement on a wide array of issues, from taxes to debt limits to spending.

Few regard the current impasse to be on a level with December's so-called fiscal cliff crisis, which had the potential to shave about four percentage points from U.S. growth and was averted literally in the final hours. By contract, sequestration is estimated to trim only 0.4 percentage points from the world's largest economy, a relative trifle.

But economists say the succession of crises, and doubts about if and how they will be resolved, has contributed to growing uncertainty among business and consumers, and damaged the recovery. America's barely visible 0.1 percentage growth rate in the last three months of 2012 was mostly blamed on risk posed by the fiscal cliff issue.

"It is regrettable ... that the U.S. continues to move from crisis to crisis in fiscal terms," Flaherty said.

"I'm not blaming anybody except everybody who is responsible for developing a medium-term plan in the largest economy in the world, because it effects all of us in the world, including Canada."

Still, Flaherty said he still regards Europe as the biggest threat to the global outlook, not the U.S.

Analysts said Friday that Canada's disappointing 0.6 per cent growth rate, as reported by Statistics Canada, was also at least partially attributable to the climate of uncertainty posed by the fiscal cliff battle. They note that most of the weakness came from a drawdown in stockpiled inventories, suggesting firms were concerned about future sales should the U.S. economy take a hit.