By: Rachel Pulfer

Prime Minister Stephen Harper’s trip to the NAFTA summit in Guadalajara earlier this week netted two curious outcomes. One is how Harper managed the mess over Mexican visas, aka the Blame Canada show. The other is how all three leaders dodged the ongoing debacle of Buy American.

At that summit, Harper attempted to dampen Mexican ire over his government’s decision to require visas for its country’s citizens by saying Canada’s clogged refugee applications system is somehow to blame. That’s partially true. But if our clogged system is the prime driver behind the hold-up in processing Mexican applicants, then presumably Canada should be working harder to fix the system—not penalizing the estimated 250,000 Mexicans who choose to visit each year.

However, it’s also plausible that, courtesy ongoing political instability in northern Mexico, there are a disproportionate number of Mexicans applying to come to Canada right now. Official figures put the numbers at approximately 9400 last year, which, the federal government claims, represents 25% of all refugee applicants to Canada in 2008.

Over the longer term, and combined with an intelligent overhaul of our immigration system designed to make it easier for immigrants to integrate more quickly into Canada’s economy, this could be a good thing. Study after study from the Conference Board of Canada and others show Canada needs more people to maintain its economic growth.

But right now, such an influx is a strain on the resources of the system that processes refugees. Rather than requiring visas on short notice, a move that penalizes all Mexican visitors, as well as the Canadian tourism industry, the smarter strategy would be for Harper et al to channel support down south and help mitigate the root problems causing this outflow of people.

By announcing he’d be sending $400,000 to help Mexican president Felipe Calderon combat Mexico’s northern narco-terrorists, Harper did eventually come around to this way of thinking. Unfortunately, that gesture came too little, too late. Net effect: instead of recruiting Calderon as an ally in what should have been a joint effort to combat new trade barriers that jurisdictions in all three countries are attempting to put up, Harper managed to alienate Calderon in the most public way possible.

The second worrying outcome of the Guadalajara meet-and-greet was Barack Obama’s disingenuous attempt to dismiss the ongoing problems caused by Buy American as “disproportionate.”

Buy American is a problem. It’s a drag on stimulus fund disbursement in the U.S. It’s causing confusion over hiring and contracting practices on both sides of the border. It’s prompting other jurisdictions and other countries to erect retaliatory trade barriers. That threatens global trade flows, which is the single factor most likely to nip nascent economic recovery in the bud. And all that means it’s going to be a key issue for businesses in all three NAFTA states—one that will have to be resolved before economic recovery can take root.

Better leadership is required to address and resolve the issue. However, for reasons that have more to do with domestic political pressures than economic sanity, Obama won’t acknowledge the problems Buy American is causing. Worse, he’s allowing a legal sleight-of-hand to obtain, whereby the federal government requires state and municipal governments to enact Buy American riders on stimulus projects—while somehow claiming this is entirely in the spirit of the free trade his country’s businesses continue to enjoy with Mexico and Canada. In so doing, Obama has made it clear that on Buy American, leadership will not come from him.

That puts the onus squarely on Stephen Harper. When he visits the White House on September 16, Harper has to make the argument, in as compelling terms as he can muster, that threatening the seven million jobs currently supported by cross-border U.S./Canada trade with short-sighted protectionist measures is not the route to cross-border economic health.

On September 24 and 25, the White House will welcome the world’s leaders to the Pittsburgh Summit, a global confab on the state of the economy. It’ll be exactly one year since the biggest economic crash since the Great Depression. By that time, consensus on what to do about Buy American should be clear, and concrete measures in place to mitigate its impact.

If nothing happens on Buy American, and the impact of those policies continues apace, global trade volumes will continue to dip. On July 22, the director of the World Trade Organization, Pascal Lamy, announced the WTO was revising its projected drop in trade volume for 2009 downwards from 9 to 10%.

Where trade flows slow, job losses follow close behind. Those losses will be more acute in Canada over the next couple of quarters, as the dramatic drop of 45,000 jobs in July shows. That’s because there is a six-to-eight month lag, as Canada absorbs the impact of recession and recovery in the United States. This time, that trend will be exacerbated in Canada by the impact of being effectively shut out of U.S. stimulus spending.

Unfortunately for all those predicting early recoveries, that’s a problem. For as long as jobs continue to evaporate at an accelerating rate, genuine economic recovery in Canada will remain an optimist’s pipe dream.