B.C. Business Matters:
Jock Finlayson >>
The Trump Presidency: Three Possible Silver Linings for Canada
Donald Trump's surprise victory in the US Presidential election, coupled with continued Republican control of Congress, heralds significant changes in American policy in the domains of foreign affairs, trade, immigration and taxation, among other areas. Many Canadians are uneasy about the direction America may take under its new leadership. Mr. Trump's political ascendancy is likely to add to the stresses and strains facing an already fragile and unsettled world.
For British Columbia and Canada generally, there are 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: Mr. Trump’s stated intention to re-negotiate NAFTA and scrap the Trans-Pacific Partnership agreement; the prospect of mounting trade conflicts precipitated by Mr. Trump’s threat to impose steep tariffs on imports from China and Mexico; and the risk that the Canada-US border may further “thicken” if the new administration abandons America’s traditional support for trade liberalization and an open global economy.
But there could also be a more positive story for Canada. To see why, start by recognizing that at the heart of Mr. Trump’s platform was a pledge to lift America’s anemic economic growth rate. The US economy has been expanding by around 2% per year (after inflation) since the recession ended in mid-2009; Mr. Trump has talked about doubling that, to 4% -- an implausible goal, but one that evidently resonated with many US voters. How is this to be accomplished? The President-elect has emphasized three components of his economic growth agenda. First, a massive, multi-year infrastructure program, totaling up to $1 trillion over the next few 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 American businesses that increased steadily during President Obama’s two terms 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 Mr. Trump’s economic plan will be paid for – at this stage, a ballooning US government budget deficit is a likely scenario. But it is reasonable to assume that economic growth would receive a boost from a multi-year program of stepped-up infrastructure spending, big tax reductions, and some streamlining of government regulation. According to one leading source, all of this could increase America’s economic growth rate by more than half a percentage point per annum over the next 2-3 years. If so, Canada will gain as faster US economic growth bolsters the demand for our exports and contributes to firmer world-wide commodity prices.
For Canada, a second ray of light from the US election result is the expected resurrection of the Keystone Pipeline project. In his Contract with the American Voter, Mr. Trump promised to “eliminate roadblocks” to the development of new energy infrastructure, pointing specifically to Keystone as a project that should “move forward.” Keystone would add 830,000 barrels a day of capacity, with most of the extra oil sourced from Alberta. Anything that allows Canada to ship more oil to US markets in the mid-west and Gulf coast would be positive for our energy industry and the overall economy. British Columbia businesses that are tied into supply chains that serve the Alberta energy sector should also benefit as Keystone leads to increased Canadian oil production and greater investment in the country’s beleaguered oil and gas industry.
Finally, Mr. 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 US universities, currently working in the country, or pondering moving to America. 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 America's approach to immigration that may prompt more skilled foreign workers and talented foreign students to view Canada as an appealing destination.