Time is running out for U.S. lawmakers to pass legislation that can avoid a government shutdown at the end of the month — an event that could have broad implications for federal workers and the North American economy.
Congress has until midnight Sunday to reach a deal on funding the government, but far-right Republicans in the House of Representatives have dug in their heels on enacting steep spending cuts, forcing House Speaker Kevin McCarthy to try and reach a consensus within his own party.
The Democrat-controlled Senate is unlikely to support those cuts and other conservative priorities, including ending military aid to Ukraine as well as climate change funding. U.S. President Joe Biden has also vowed to veto those measures.
McCarthy is set to try and push some spending bills through the House this week in the hopes of avoiding the shutdown deadline. The Senate, meanwhile, was pursuing its own legislation that would continue current funding for just six weeks, allowing more time for budget negotiations.
If even a short-term spending resolution isn’t passed in time, the government will shut down on Oct. 1.
While some essential services will be exempt, many other government functions will be severely curtailed, and millions of federal employees won’t receive paycheques. Social services and benefits for low-income Americans will also be hit.
Republicans launch Biden impeachment inquiry
Economists warn a shutdown — depending on how long it lasts — may affect consumer and investor confidence in the U.S. economy, which is already feeling the pressure from inflation and multiple labour disputes. That could spill over into Canada, those experts say.
“There will be micro-disruptions for Canada,” said Thomas Davidoff, an economics professor in the University of British Columbia’s Sauder School of Business.
“The longer (a shutdown) lasts, the worse it could get” for both countries, he added.
What might be affected?
The White House has spent recent days highlighting the impacts a shutdown will have on everyday Americans who rely on government services.
On Monday, U.S. Agriculture Secretary Tom Vilsack told reporters that the “vast majority” of the seven million participants in the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) program would see an immediate reduction in benefits in the days and weeks after a shutdown starts.
The U.S. Department of Agriculture says nearly half of U.S. newborns rely on WIC, which provides benefits to ensure new parents and infants get proper nutrition.
‘That’s Bidenomics!’: Biden vows to build U.S. economy from ‘bottom up’
A separate benefits program, Supplemental Nutrition Assistance Program (SNAP) — which helps over 40 million Americans with the cost of groceries — will continue as normal for the month of October but could be affected afterward, Vilsack said.
Other assistance funds could also be depleted. The U.S. Federal Emergency Management Agency’s (FEMA) disaster relief fund, already stretched thin this year by increased wildfires and hurricanes, could run out of money and “complicate new emergency response efforts,” the White House said.
Education grants like Head Start, small business loans, food and environmental inspections, and infrastructure projects could all be impacted by a lack of funds, according to the Biden administration.
Some government assistance, including Social Security, will be exempt from a shutdown and cheques will continue to go out. But Biden administration officials warn even those funds could risk being depleted the longer a shutdown lasts.
Although employees deemed essential such as air traffic controllers and law enforcement officers will still have to report to work in the event of a shutdown, other federal employees would be furloughed. Under a 2019 law, those same workers are slated to receive backpay once the shutdown ends.
Military operations deemed essential for national security will continue. That includes the overseas training of Ukrainian fighters defending the country from Russia’s invasion, the Pentagon confirmed last week, as well as already committed weapons shipments.
Zelenskyy visits Washington, appeals for more U.S. aid
But Pentagon spokesperson Sabrina Singh admitted to reporters on Monday that a shutdown would still have implications on military readiness, with training and paycheques delayed.
“When you don’t have your full operating capacity, to be able to help with a mission, to be able to conduct an exercise or training, of course, that gets to our national security and readiness,” she said.
“Troops would go without pay. Military families would be impacted, of course. For folks that are not getting paycheques, that impacts how and when can buy groceries, child care, all of these things.”
Economic risks
During the debt ceiling crisis last summer, credit agencies and economists warned a failure for lawmakers to reach a deal would shake confidence in the government to fulfil one of its basic duties: keeping the government open and funded.
Despite a deal being struck that raised the debt limit, Fitch Ratings later downgraded its AAA credit rating for the U.S. government, citing the growing partisan divide that’s making it more difficult to set fiscal policy.
Another credit rater, Moody’s, said as much in a report this week that said a shutdown would “underscore the weakness of U.S. institutional and governance strength.” It also said the U.S. lacks a focus on medium-term fiscal policy in contrast to other AAA-rated countries — including Canada and Germany — instead exacerbating political tensions through short-term solutions to spending.
The report warned mass transit and public housing authorities, defence contractors and state and local governments would feel the brunt of a U.S. government shutdown.
The U.S. Chamber of Commerce also warned that “a well-functioning economy requires a functioning government.”
Biden celebrates ‘crisis averted’ after debt deal passed in U.S. Senate
Goldman Sachs has estimated that a shutdown would reduce economic growth by 0.2 per cent every week it lasted, but growth would then bounce back after the government reopens.
The last government shutdown, in 2019, lasted 34 days.
A new Conference Board report on Tuesday found U.S. consumer confidence dropped to a four-month low in September. While economists said those fears were spurred mostly by higher prices and rising fears of a recession, they noted “the political situation” in Washington was also raised by respondents.
What about Canada?
Canada’s major banks have not yet publicly commented on whether the shutdown is creating ripples in the markets north of the border. Economists say it may take an actual shutdown for any panic to set in.
“The business community in Canada is pretty much ignoring this looming shutdown because we’ve seen this before again and again, with a shutdown avoided at the last moment,” University of British Columbia economics professor Werner Antweiler told Global News in an email.
“The disruptions would be so large and devastating that it is hard to see that the current Republication leadership in the House of Representatives would not find a last-minute way to prevent it.”
How the U.S. debt ceiling impacts Canada
Antweiler said Canada could be “severely impacted” if a shutdown affects international trade, but noted steps have been taken in the past to avoid such a scenario.
Those include declaring U.S. Customs and Border Patrol agents at the Canada-U.S. border as essential workers, requiring them to work without pay in order to keep cross-border trade routes open.
The U.S. Department of Homeland Security did not answer Global News’ request for comment on whether such a move will be made in the event of a shutdown this time.
Davidoff, the University of British Columbia professor, said any Canadian firm that relies on U.S. government contracts will be impacted if payments can’t be immediately fulfilled.
Both he and Antweiler agreed that the Canadian impacts would be relatively low at first, but a prolonged shutdown would rock investor and consumer confidence on both sides of the border. Canadian investors may begin to look elsewhere if the U.S. continues to look unstable, they suggested.
“It all depends then on how long the shutdown would persist,” Antweiler said.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
