Presidential candidates’ ‘America first’ policies hold risk for Canadian recovery

21 October 2020

“America first”-style policies are likely to persist regardless of whether Biden or Trump wins the presidential election, according to RSM Canada’s third quarterly Real Economy report. This will pose risks for Canada’s recovery from the Covid-fueled economic downturn.

It’s no secret that Canada’s economy is highly intertwined with, and dependent on, the US. Since the launch of the NAFTA free trade agreement in 1994 that dependency has only grown. Canadian exports to the US increased by 2.5% to $443 billion between 2018 and 2019.

Meanwhile, Canada’s diplomatic and trade relationship with China has regressed as the US-China trade war has continued. Between 2018 and 2019, Canadian exports to China fell 15.8% to $25 billion.

Since the Canadian economy generally goes the way of the American economy, a Trump election would almost certainly be a worse outcome for growth prospects. Investors and markets are far less confident in Trump’s blend of anti-trade and isolationist policies, his anti-immigration stance, his approach to stimulus spending, and his handling of the Covid-19 pandemic generally.

Canada total trade, US and China

However, regardless of whether Biden or Trump wins, “America first” policies will continue. Biden’s “Made in America” tax incentive – which gives tax credits to companies in the US that expand employment in the US – could potentially dissuade US investment in Canada.

Trump’s isolationist tendencies and protectionism, as seen in his previous wrangling on pulp and aluminum, would probably mean further trade headaches for Canada.

But Biden has not indicated that he will soften the current combative trade stance with China, signalling a significant departure from the Obama and Clinton administrations, according to the RSM report.

“Canada will continue to be negatively affected by US-China trade relations regardless of who wins the November election,” noted Alex Kotsopoulos, a VP at RSM Canada and co-author of the report.

Impression of President Trump

A Biden victory – currently the likeliest outcome heading into November – could spell further trouble for a battered Canadian oil sector, however. The Democratic candidate has indicated that he will cancel the Keystone XL Pipeline, which would have opened a channel for Albertan producers to reach world markets – and the higher oil prices therein. Trump, in contrast, has been a Keystone proponent.

"Despite a rocky relationship between Canada and the current US administration in recent years, it's clear that a victory for either Trump or Biden would pose risks to Canada's economy," said Kotsopoulos. "The issue is that Canada has become increasingly dependent on its neighbour south of the border, and when you combine this with the strong 'America First' policies of both presidential candidates, Canada will feel the brunt of those decisions. Therefore, it'll be important for the Canadian government to proactively engage with the new administration to shore up trade and supply chains, which will be vital in Canada's own recovery."

Overall though, Canadians are fairly united in their disapproval of Trump. By province, Albertans are most positive in their impressions of the incumbent Republican (still under 20% approval), perhaps boosted by his support of the Keystone pipeline and its importance to the provincial economy. Quebeckers like Trump the least, with 81% having a negative impression of him, and less than 10% having a positive impression.

When sorting by party affiliation, CPCers were the most approving of Trump while NDPers were least approving, though the majority of all federal party affiliates held negative impressions of Trump.

“It is hard to think of any issue that unifies Canadians better than their shared animosity toward the current US president,” said Kotsopoulos.

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