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You know that old saying, “When the U.S. sneezes, Canada catches a cold.”
It still applies. The United States remains our biggest trading partner. What happens there affects everything from our tourism to our exports. But now, Canada is facing a bigger threat to its economic health.
It’s called Dutch Disease — and it’s complicated by Prime Minister Stephen Harper’s newly acquired China Syndrome. Stung by U.S. President Barack Obama’s rejection of the Keystone XL pipeline, Harper is looking to China’s government-owned oil companies.
Dutch Disease isn’t about tulips or wooden shoes or even sick elm trees. It’s about Canada’s steady conversion to a petro-state, fuelled by the rapid development of Alberta’s oilsands. It means that, more and more, Canada’s economy will be subject to the price of oil.
Coined by The Economist in 1977, “Dutch Disease” describes what happened to the Netherlands after natural gas fields were discovered off its shores. The little country became so economically entangled with its resource industry, its manufacturing sector tanked.
“Ontario is probably the province that has suffered the most from this,” says University of Ottawa economist Serge Coulombe, co-author of a massive study on the impact of Dutch Disease on Canadian jobs, published last fall.
“The biggest losers are typically the white males who had all those great jobs in manufacturing, much like in the U.S.,” he says, adding that Canadian salaries and environmental standards make our manufactured exports less attractive, especially as our dollar strengthens. “If we want to compete with China we have to be very, very smart. It is very, very difficult.”
In his report, Coulombe and his co-researchers determined that our petro-currency was responsible for 42 per cent of job losses between 2002 and 2007. That translates to at least 140,000 manufacturing jobs gone as a direct result of the oilsands development.
It didn’t get any better after that. Our manufactured exports dropped another 12.6 per cent between the second quarter of 2007 and the first quarter of 2011.
If Dutch Disease is allowed to spread, Coulombe and other economists warn, Canada’s ailing manufacturing sector will face still more job losses, while consumers, farmers and non-oil producing industries will feel increasing pain through inflation and gas prices at the pump.
It all started when the price of oil started rising in 2002, tripling through the decade.
The long-unprofitable oilsands, which require the expensive and water-intense extraction of tarry bitumen, suddenly became economically feasible. That increased oilsands development boosted crude exports. By 2006, oil became our biggest export, displacing autos and auto parts. The loonie surged against the weakening U.S. dollar. That made our manufactured exports — long dependent on a low Canadian dollar — more expensive. And that cost factory workers jobs.
Over the past year, alarm bells have been sounding.
Last April, Montreal-based MRP Partners (Macro Research Board), an independent global investment research firm, warned of the “petrolization” of Canada.
“Canada has often been referred to in jest as the 51st state, due to its historical reliance on the U.S. as a key export market,” wrote MRB partner Phillip Colmar. “However, it is becoming more accurate to regard Canada as another Province of China.”
“You have 1.3 billion people right now that are growing at an unprecedented rate,” explains Coulombe. “That creates a huge demand for natural resources.”
For the rest of this article, please go to the Toronto Star website: http://www.thestar.com/news/canada/article/1136578–ottawa-s-focus-on-alberta-oilsands-is-killing-manufacturing-jobs-in-eastern-canada-economists-say