Donald Trump’s surprise victory in the presidential election, coupled with continued Republican control of both branches of the U.S. Congress, heralds significant changes in the United States’ policy in trade, immigration, foreign affairs, energy and taxation.
Many Canadians are understandably uneasy about the direction the U.S. may take under new leadership. At a minimum, Trump’s political ascendancy injects added stress and uncertainty into an already fragile and unsettled world.
From a Canadian business perspective, there are likely to be economic downsides and upsides from the new political order that’s about to take shape in Washington, D.C.
The downsides have received extensive media commentary: Trump’s stated intention to renegotiate NAFTA and scrap the Trans-Pacific Partnership agreement; the prospect of mounting global trade conflict precipitated by Trump’s threat to impose tariffs on imports from China and Mexico and designate China as a “currency manipulator”; and the risk that the Canada-U.S. border may thicken further if the new administration abandons the U.S.’s traditional support for trade liberalization and an open global economy.
But there could also be a more positive story for Canada. At the heart of Trump’s platform is a pledge to lift the U.S.’s anemic economic growth rate. The U.S. economy has been expanding by around two per cent a year (after inflation) since the recession ended in mid-2009.
Trump has talked about doubling that, to four per cent a year – an implausible goal, but one that evidently resonated with many voters. How is this to be accomplished? The President-elect has emphasized three components of an economic growth agenda.
First, a new infrastructure program totalling $1 trillion in additional spending over the next four years. Second, significant tax cuts for both businesses and individuals, amounting to hundreds of billions of dollars of incremental economic stimulus. Third, a commitment to roll back the regulatory burden on U.S. businesses that increased steadily during President Barack Obama’s time in office.
It is too soon to know to what extent the various parts of this economic agenda will be implemented – and how quickly. Nor is it clear how Trump’s economic plan will be paid for. At this stage, a ballooning U.S. government budget deficit looks to be a probable scenario.
But it is reasonable to assume that economic growth will receive a boost from a multi-year program of stepped-up infrastructure spending, large tax reductions, and some streamlining of government regulation.
According to one leading forecaster, all of this could increase the U.S.’s economic growth rate by more than half a percentage point per annum over the next few years. If so, Canada will gain as faster economic growth stateside bolsters the demand for our exports and contributes to firmer world-wide commodity prices.
For Canada, a second ray of light from the U.S. election result is the expected resurrection of the Keystone XL pipeline project. In his Contract with the American Voter, Trump promised to “eliminate roadblocks” to developing new energy infrastructure, pointing specifically to Keystone as a project that should “move forward.”
Keystone would add 830,000 barrels a day of shipment capacity, with most of the extra oil sourced in Alberta. Anything that allows Canada to export more oil to U.S. markets would be positive for our energy industry and overall economy. Businesses all across Canada that are tied into the supply chains that serve the Alberta energy sector should also benefit as Keystone leads to increased Canadian oil production and more investment in the country’s beleaguered oil and gas industry.
Finally, Trump’s policy stances on immigration could also create upside opportunities for Canada. Neither the tone nor the substance of his election platform are welcoming to foreigners studying in U.S. universities, currently working in the country, or pondering moving to the U.S.
Canada’s relatively open approach to immigration, including by providing pathways to employment and permanent residency for international students with Canadian credentials, may attract interest from prospective immigrants who otherwise would be drawn to the United States.
As the Canadian government looks to retool aspects of our own immigration policy, it would be well-advised to take into account shifts in the U.S.’s approach to immigration that may prompt more skilled foreign workers and talented foreign students to view Canada as an appealing destination.
Jock Finlayson is executive vice-president of the Business Council of British Columbia.