Photo: The Canadian Press

President Joe Biden and House Speaker Kevin McCarthy of California walk down the steps of the House of Representatives after attending an annual St. Patrick’s Day luncheon on Friday, March 17, 2023 on Capitol Hill in Washington. Biden is set to meet with congressional leaders today as the race against the clock to raise the US debt limit begins in earnest. THE CANADIAN PRESS/AP/Mariam Zuhaib

Canada’s federal government watched closely and said little Tuesday as a high-stakes race against the clock began in earnest in the White House with the health of the world economy at stake.

President Joe Biden met with congressional leaders including Speaker Kevin McCarthy, his main opponent in a protracted standoff over the debt ceiling — a legal limit on the US government’s borrowing power.

Treasury Secretary Janet Yellen last week warned that the current cap could be reached as early as June 1, leaving the US without enough cash to pay all of its bills.

House Republicans say they will not agree to raising the limit — once a routine procedural matter, now a common and all-too-familiar point of political tension — without significant cuts in government spending.

Politically, Canada makes a wide berth. In practice, however, it is in the same boat.

“In a lot of ways we’re like a 51st state — we’re joined at the waist to the US,” said Andreas Schotter, professor of international economics at Western University’s Ivey Business School in London, Ontario.

Canadian companies and institutions that sell products or services or lend money to the U.S. government would feel the impact of a default almost immediately, Schotter said, not to mention the impact on stock markets in both countries.

Already rising interest rates would skyrocket, hitting taxpayers and private borrowers hard. Demand for commercial paper such as Treasury bills would fall, preventing the US from covering its rising debt costs.

Schotter made it clear that he doesn’t expect the US to get off a fiscal cliff, although given the current political climate it is likely to come close to the brink.

But for America’s No. 1 trading partner and a bilateral relationship with a daily business value of CA$3.25 billion, the impact of a default would be profound and far-reaching, he added.

“A US default that no one can afford.”

Despite the deployment, protocol requires the rest of the world, including Canada, to maintain a safe diplomatic distance from combat.

“The potential consequences of a US debt default would be global and discussions between the President, the Executive Branch and Congress are ongoing,” the Embassy of Canada said in a statement.

“Canada is following this issue very closely.”

Deputy Treasury Secretary Randy Boissonnault said Tuesday only that the standoff was a “sovereign matter” for the US to deal with itself, although he noted G7 finance ministers would meet in Japan this week.

“The conversation about post-pandemic finances is an active conversation for all of our democracies, so let’s let the United States decide on its debt ceiling,” Boissonnault said.

“In our case, our budgetary position is the strongest in the G7 and therefore we will continue to manage the budgetary framework.”

The stage for Tuesday’s showdown has been set since January, when Yellen first warned that a default could be on the horizon by early summer without raising the debt ceiling. Republicans who control the House of Representatives say they won’t do it without spending cuts.

They already narrowly passed a largely token law, dubbed the Default on America Act, that would limit discretionary spending to 2022 levels, a reduction of at least $142 billion from 2023 levels.

Biden has vowed to veto it if it somehow happens in the Senate, where 43 Republicans stand with their House counterparts in talks calling for “spending cuts and structural budget reforms as a starting point.”

Biden has declined to be involved in negotiations, insisting he will not discuss cuts until the House agrees to increase the limit without strings attached.

“Republicans are holding the entire economy hostage and saying if their entire agenda isn’t done they will cause an unprecedented default,” White House press secretary Karine Jean-Pierre said Tuesday.

“What the President is doing is the opposite of that. He wants to make sure we take that off the table and have a separate conversation.”

Daniel Pfeiffer, a former White House adviser to President Barack Obama who twice struggled with debt ceiling talks during his two terms in office, offered an insight into Biden’s hardline strategy in a New York Times essay Monday.

Both Pfeiffer and Biden, Obama’s then-vice president, sat ringside when the White House struck a “big deal” with House Speaker John Boehner in 2011, only to watch a breakaway GOP caucus break with their leader .

“A painful lesson has been learned,” Pfeiffer wrote. “Negotiating with the ticking clock of a global financial collapse was a losing proposition.”

Add to that mix the fact that House Republicans are dramatically more unpredictable today than they were 12 years ago, and it’s no wonder Biden won’t act, said Duke University politics professor John Aldrich.

“McCarthy has a very small party majority and some real fear that his right wing might attack him (again) as speaker,” Aldrich said.

The president must walk a “narrow path” out of the stalemate, one that will likely include two separate bills, he said: one raising the debt ceiling with no strings attached, and another with spending cuts to placate Republicans.

“It’s a balancing act, and it could easily go wrong,” Aldrich said. “The US’s loss of credibility hurts everyone, and will do so for a long time to come.”