After Congress failed to reach a deal to fund the government for the upcoming fiscal year, parts of the U.S. government began to shutdown on Monday October 1, 2013. Although much of the government work force has been deemed ‘essential,’ and thus exempt from the effects of the federal funding hiatus, all non-essential personnel have been furloughed, as per the regulations laid out in the Antideficiency Act.[1]

All told, roughly 800,000 federal workers have been released from their jobs and will not be able to return to work until Congress can pass a spending bill to fund the government again.

If the shutdown lasts for any significant period of time, the implications for the United States are substantial. According to the non-partisan Congressional Research Service, the government shutdown of 1995-96, which lasted from December 16 to January 8, cost the government alone $1.4 billion dollars.[2] The effects to the economy as a whole are thought to have been much larger, though they have been more difficult to measure.[3]

As one of the United States’ closest neighbors and its biggest trading partner, the shutdown also has substantial implications for Canada. The main concern is, of course, the economy. As the United States’ largest trading partner, Canada has always been vulnerable to fluctuations in the U.S. economy. If the shutdown drags on for any length of time, the economic effects will surely be felt on both sides of the border.

Canadian companies that sell to U.S. government agencies are the Canadian actors most likely to be affected. If the shutdown lasts for more than a couple days, many companies will face cancelled or delayed orders, as shutdown regulations prevent government agencies from entering into new contracts or incurring obligations while the shutdown is ongoing.

Trade in goods may also be affected, though not immediately. U.S. Customs and Border Protection, which is responsible for manning Canada-U.S. border crossings, has furloughed 6,888 of its 59,561 employees, or roughly a tenth of its work force.[4] While the guards responsible for manning the border are exempt and have remained on duty, Customs and Border Protection has frozen all ongoing training activity. While this will do little harm to cross border trade in the short run, it may cause problems in the future, if the delay in training leads to a future shortage of trained border personnel. As a result, the shutdown may eventually result in some delays at Canada-U.S. border crossing, through which $617 billion worth of goods passes every year.[5]

Perhaps most worrying of all, the government shutdown is not the only crisis on the horizon in the United States. If nothing is done before October 17, the U.S. will hit its debt ceiling and be forced to default—temporarily, at least—on a portion of its obligations, which  is a move that would likely send financial markets, including those in Canada, into a swift dive.

Unfortunately, time will only tell if Congress is able to overcome its current gridlock and find a way to pass a funding bill and then raise the debt ceiling in quick order. Until then, Canadians can only watch the current crisis unfold with baited breath—a stark reminder of just how vulnerable we are to politics south of the border.


[1] For more about the Antidefficiency Act, see United States General Accounting Office, Principles of Federal Appropriations Law, Volume II, Third Edition, http://www.gao.gov/special.pubs/d06382sp.pdf (accessed October 2, 2013).

[2] Clinton T. Bass, Shutdown of the Federal Government: Causes, Processes, and Effects, Congressional Research Service, September 25, 2013, p. 5, http://www.fas.org/sgp/crs/misc/RL34680.pdf (accessed October 2, 2013).

[3] For example, see Roy T. Meyers, “Late Appropriations and Government Shutdowns: Frequency, Causes, Consequences, and Remedies,” Public Budgeting and Finance (Fall 1997), 25-39, http://userpages.umbc.edu/~meyers/govtshutdowns.pdf (accessed October 2, 2013).

[4] U.S. Department of Homeland Security, Procedures Relating to A Federal Funding Hiatus, September 27, 2013, http://www.dhs.gov/sites/default/files/publications/dhs-lapse-contingency-plan-09-27-2013.pdf (accessed October 2, 2013).

[5] Office of the United States Trade Representative, “U.S.-Canada Trade Facts,” http://www.ustr.gov/countries-regions/americas/canada (accessed October 2, 2013).

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