Michigan, U.S. gain economic advantage over Canada

Correction: A previous version of this story misstated the location of the Martinrea technical center.

The brass at Martinrea International Inc. ran the numbers, and they added up to a no-brainer. The new technical center would be built across the border in Auburn Hills, not in its home province of Ontario.

For a company with manufacturing and engineering facilities in eight countries, it wasn’t necessarily surprising that Canada’s third-largest auto-parts supplier would make such a decision. But the reasoning was harsh.

“Canada’s advantage is in the process of going out the window,” Chairman Rob Wildeboer said in an interview before the ribbon-cutting on the research and development complex in Auburn Hills that employs about 160 people.

Wildeboer reeled off his evidence, including rocketing electricity costs and changes to Ontario’s labor rules, which include a 30 percent hike to the minimum wage. While national economic growth is projected to slow this year, the U.S. economy is accelerating, getting a boost from tax cuts that he said put his country in the shade.

Sure, Michigan offered some tax abatements, but Wildeboer said that wasn’t the biggest draw. The U.S. is just more business-friendly, he said. “Be competitive, or you’re going to kill the goose that laid the golden egg.”

Around the country, business owners and corporate executives are grumbling. Quebec, Alberta and British Columbia are also boosting minimum wages. The federal government is requiring provinces to put a price on carbon emissions to help fight climate change in a program that could push power bills up further. Railroad bottlenecks threaten Canada’s standing as a major commodities exporter. There’s insufficient pipeline capacity for the oil-sands boom.

But, according to Wildeboer and others, what threw the competitive challenges into relief were the U.S. tax changes championed by President Donald Trump. For years, Canada boasted much lower corporate levies. That edge has vanished. The U.S. rate tumbled to about 26 percent from 39 percent including what states take compared with Canada’s combined rate of roughly 27 percent.

The U.S. move sparked an intense bout of reassessment of what is disparaged by some as hipster economics. After years of focus by provincial and federal Liberal governments on issues such as income inequality, diversity and the environment with Prime Minister Justin Trudeau winning international plaudits for his efforts in these areas, a chorus is demanding that more attention be paid to old-fashioned economic growth.

Canadians have to answer some tough questions, said Don Walker, chief executive officer of Aurora, Ontario-based Magna International Inc., North America’s largest auto supplier. “Do we want to be a capitalist country, where you’re attracting the capital and you’re building businesses and hiring people? Or do we want to be more socialist, where the government gets bigger, spends more money, puts us into this huge debt, which is going to burden future generations and makes it less competitive to do business here?”

In Trudeau’s view, certainly, progressive policies such as open immigration and environmental protection are advantages that many investors recognize. U.S. tech companies, including Amazon.com Inc. and Alphabet Inc.’s Google have recently boosted hiring in Canada. Toyota Motor Corp. is putting C$1.4 billion ($1.1 billion) into two plants west of Toronto, with the federal and Ontario governments each contributing C$110 million to the program.