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How the U.S. shutdown could affect the Canadian economy

Renan Levine is a lecturer in the political science department at UTSC. (Photo by Ken Jones)

The United States’ federal government shutdown is now in its seventh day.

The stalemate over specifics of the debt ceiling, President Barack Obama’s Affordable Care Act and the operating budget continues to stall the American economy with no end in sight.

Renan Levine teaches U.S. politics at the University of Toronto Scarborough campus. He explained his take on potential consequences of the shutdown—and what could be done to end it—to U of T News.

Real impact of the shutdown won’t be felt until around two weeks on
At this point there’s not a huge deal. There are a lot of inconveniences ranging from tourists expecting to visit a national park to people who need paperwork or information from the government to just uncertainty among companies that are government contractors needing to be paid. Impact right now? Not huge. The uncertainty of how long this is going to on is big because people don’t know if they can they plan to do X, Y or Z. Can people expect to get a paycheque at the end of the month? That big impact really begins to be felt in the economy, historically, after a couple of weeks. With some of the biggest, most contentious government shutdowns, it took two or three weeks to say “This game of chicken has gone on long enough.” Each day pressures build.

It probably won’t be resolved quickly
I do think it’s going to be long. There do not seem to be any strong signs of one or the other side being close to caving in. There are some whispers coming out of the Republicans in the House and some surprisingly heated rhetoric from senior, more or less moderate, Republicans like John McCain saying, “This is ridiculous and it has to stop.” But I don’t know whether that is going to make a big difference when the demands are so severe.

It’s not like, “Oh, do we cut these programs by two per cent or five per cent?”  Instead, they’re saying, “No ‘Affordable Care Act.’” And the other thing that’s looming large is the debt ceiling. Meaning three issues are going to be very quickly linked: an ongoing operating budget, the importance of extending the debt limit or being forced to default on some government loans and the Affordable Care Act. To link those together in a highly partisan, contentious atmosophere? There’s not a lot of common ground between Republicans in Congress, Democrats in the Senate and the White House right now.

"Obamacare" likely won’t be axed due to the stalemate
I don’t see the Affordable Care Act as being completely undone as a result of this budget. I don’t see the President caving in and I think the President is confident that the majority of the public that he cares about isn’t going to blame him or the other Democrats. I think a lot of them are looking at that debt ceiling. I think because they know Obama’s not going to give in on the Affordable Care Act, then the only thing he has left to bargain over is the debt ceiling. So I suspect they’re going to try to get some other concessions and that Obama’s going to have to gut something else in order to save the Affordable Care Act.

Canada will be affected, but not sent into total crisis by a continued US shutdown
There’s the old saying about when America catches the flu, Canada catches a cold. If the American economy really takes a hit, the effect of both the budget crisis and the uncertainty as to when these games will end will affect Canada, because so much of the Canadian economy is tied up in the US. It’s not like the Canadian economy can turn around and immediately start increasing trade with Latin America, the far east and Europe. Our trade relations are our trade relations and if things start slowing down because customers of Canadian products are saying, “We haven’t been paid for a month or two, and we don’t know when the next contract is that we’re going to be able to work on,” then, yeah, there’s going to be an effect. Fortunately, it may not be as bad as what could be happening—we’re only indirectly affected. There is still a market for Canadian goods. It’s just not going to make things easy.

There could be global consequences of the shutdown if it continues for long
They’re playing this game of chicken that doesn’t reflect well on anybody. People are thinking, "What immature jerks are playing this game of chicken?" Well, the answer is, politicians. Just playing the game of chicken doesn’t look great but most of the time it doesn’t end up hurting anybody. However, if neither side decides to pull their car over, and they have a full-on collision that affects the debt ceiling? Then we’ve got a global crisis on our hands. But typically it doesn’t get that far.

© University of Toronto Scarborough