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When it comes to the Canadian economy, Obama may as well be PM

From Wednesday's Globe and Mail

Barack Obama is determined to fundamentally restructure the American economy by greatly reducing its reliance on fossil fuels, and Congress appears willing to go along.

This week, the House energy and commerce committee is expected to vote on, and approve, legislation to institute a cap-and-trade system to reduce greenhouse-gas emissions - something that, two months ago, I blithely predicted would not happen.

The crucial change came from industry associations, which have given up trying to kill the bill, but are hoping to modify it. Business leaders appear to have concluded that the Republican opposition has no hope of regaining control of Congress in 2010, so they have decided that the best strategy is to work with the Democrats in crafting legislation rather than to fight them in a losing cause. With that realization, everything becomes possible.

For Canada, this is dangerous. There is nothing worse for Canada's sovereignty, or for its economic interests, than an activist American president and a compliant Congress. Barack Obama has more influence over your life and your job than Stephen Harper does. And you're not going to like some of what your president has planned.

Mr. Obama believes that government should shape the direction of the economy through an industrial strategy, using regulatory measures to constrain market forces while directing investment and consumer spending along desirable paths.

In pursuit of a strategy aimed at reducing carbon dependence and making the United States a leader in alternative energy sources, he is willing to impose Draconian controls. Yesterday, he introduced standards on fuel efficiency and emissions that will reshape the entire automotive industry, rendering the large sedan, pickup truck and SUV virtually extinct.

And since the U.S. fuel-economy standard will rise to 35 miles per gallon from 25 mpg by 2016, Canada is going there too, whether we want to or not.

Successive Liberal and Conservative administrations have failed to produce any kind of meaningful cap-and-trade system for Canadian industry. Given the weakness of the federal political parties and the total dysfunction of Parliament, it is unlikely they ever will.

But the United States is moving ahead. There will be an American debate, with American players, that will lead to an American carbon market that Canada will then swiftly emulate. We'll have no choice, if we want to avoid punitive tariffs that are expected on products entering the U.S. from environmentally unfriendly countries.

Even if Canada does copy the American system, the future of the greenhouse-gas-spewing oil sands is now one big question mark.

The American strategy also entails restructuring the domestic automotive industry, with Ford, General Motors and Chrysler mandated to build cars that can compete with their Japanese and European counterparts. Canada has an enormous stake - including direct government investments in Chrysler and GM - in that restructuring. But we are ultimately passive observers, who can only cross our fingers and hope that the Obama administration's plans save Canadian auto workers' jobs.

In financial services, the President is expected to sign legislation this week that imposes strict new limits on the ability of credit-card companies to manipulate interest rates and impose penalty fees. Expect Canadian legislation that mirrors its American counterpart.

In many of these plans, we see worrying elements of creeping protectionism. We have seen it in the Buy American provisions of the stimulus package, which appear to be coming true despite the administration's assurances; we expect to see it in the final cap-and-trade legislation, in the form of tariffs on imports from countries whose own cap-and-trade measures are deemed inadequate; we worry about as-yet-undreamed-of future penalties and restrictions coming out of this Congress and this administration.

To this furious season of reform, Canada's government has two possible responses. One is to propose a greater degree of economic integration with the U.S., to forestall any new protectionist measures. The other is to impose retaliatory penalties of our own.

The first path is the most sensible, but the second is more politically appealing, which is the great concern.

Despite all this, Canadians still continue their infatuation with Barack Obama. It's just as well; for better or worse, he is as much prime minister as president.

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