With gridlock in Washington, chill sets in among Canadian businesses

Watch: IMF officials discuss the potential impact on the global economy should U.S. lawmakers fail to agree to raise the U.S. government’s borrowing limit. 

The quality control on products made by Winnipeg’s Acrylon Plastics is a life and death matter. “If we don’t get it right, people die,” Craig McIntosh, the company’s chief executive says.

Acrylon makes components for the U.S. army, which include among other items, plastics that go into anti-aircraft equipment, medical tools and other military products that if they fail, costs lives, he says.

Acrylon, like thousands of Canadian businesses at the moment, isn’t faced with a mortal threat by a U.S. government impasse dragging into its second week, at least not yet.

But business with the U.S. military as well as with hundreds of other federal agencies and programs, is drying up. And with a countdown moving closer to a U.S. government default in mid-October, a chill has set in north of the border as companies hold back on spending plans amid the uncertainty.

“There’s nothing to panic over yet,” McIntosh said but “we’re getting notices to delay products.”

At Acrylon’s plant in Minneapolis, the federal shutdown that went into effect seven days ago yanking hundreds of millions in funding for all “non-essential” government services is now threatening the jobs of 75 or so workers, McIntosh said.

Acrylon’s Minneapolis plant is one of five the Canadian company operates, with the remaining four residing in Canada. Half of the plant’s business comes from contracts either held directly with the U.S. military or companies contracted out by that nation’s defence department.

Those contracts are still valid, but without funding from the Pentagon to have their products inspected and approved for military use, they sit on warehouse skids, piling up.

Read more: Shutdown impact: A look at affected government services

The political stalemate between Republicans and Democrats in Washington has already eroded confidence among U.S. businesses, even before the shutdown became a reality last week.

Data released Tuesday by the National Federation of Independent Businesses showed an eight-point drop in confidence late last month among small- to medium-sized U.S. companies about their economy’s outlook, citing political instability.

The United States is Canada’s biggest trading partner by far, with more than $460 billion worth of Canadian goods sent across the border last year.

In Canada, sentiment according to recent surveys, remains upbeat.

But as Washington moves closer toward running out of cash to meet its bills – an event set to occur on or around Oct. 17 – the mood promises to darken further on both sides of the border, experts say.

The ramifications for Canadian businesses in the event of a U.S. government default would be orders of magnitude bigger than the shutdown, experts say, with a potential spike in interest rates and collapse of confidence in financial markets dragging the broader economy into a widespread retreat.

“So far it’s been a week of disruption,” Jay Myers, president of the Canadian Manufacturers & Exporters, a trade association representing thousands of firms across Canada, said. “The real impact and concern is the debt ceiling.”

Read more: The debt ceiling and potential impact on Canada explained 

And for a Canadian economy desperate for a shot in the arm from a private sector still reluctant to spend and hire amid sluggish growth prospects, events in Washington are doing more than their fair share of holding things back, Myers said.

“It’s one more reason right now that as a company you want to hold cash and you’re going to be very, very reluctant to put new money in expansion or hiring more people. You don’t know what the economic situation is going to be like.”

In order to do business, “we need stable governments that run well,” Craig McIntosh back at Acrylon said – doubtless speaking for Canadian and U.S. businesses everywhere.

“They’re not doing their part.”