How Could the U.S. Election Impact the Canadian Economy?

This week’s visit to Washington by Prime Minister Justin Trudeau, his family and his Canadian delegation was certainly one of the high points in U.S. – Canada relations in many years. It brought back memories of President Reagan and PM Mulroney singing “When Irish Eyes are Smiling” in Quebec City many years ago.

Watching the leaders toast each other and seeing some concrete agreements come out of the meetings was certainly a sign that Canada-US relations are back on a positive track. The fact that President Obama hosted a state dinner for Mr. Trudeau, the first state dinner for a Canadian Prime Minister in 19 years, was a very positive indicator that Canada is back in the good graces of its most important ally and trading partner.

Unfortunately for Canada, Barack Obama is in the last year of his presidency. At this point, the presidential race is pretty much down to four candidates, Bernie Sanders and Hillary Clinton for the Democrats and Donald Trump and Ted Cruz for the Republicans. As you listen to and study the rhetoric from these candidates, and sense the mood of the American electorate, there is much to worry about.

The Democrats

Canadians don’t need to look much further than the result of the Democratic Primary in Michigan to gain an understanding that the United States is entering a different era. Michigan has a significant number of African American voters and is a state that still has a strong tie to the automotive industry. Of course, the state borders the province of Ontario in Canada. Millions of dollars in goods cross the Ontario-Michigan border every day.

The surprise Sanders victory indicates that there is a lot of dissatisfaction with the results of the NAFTA Free Trade agreement and its impact on American jobs. Many African Americans in the northern US states bought homes as their primary investment and lost them during the Great Recession. The job losses and home foreclosures are causing many of them to turn away from the establishment. They are moving away from politicians who support Free Trade agreements that they perceive have resulted in a migration of jobs outside of the United States, some to Mexico and some to Canada. Bernie Sanders’s socialist message, that includes a commitment to provide free university education at public universities to every American citizen, resonated with many voters in the state. While Hillary Clinton has now said that she will not support the TPP Trade Agreement, many American still see her as a “free trader” and job loser.

The Republicans

On the other side, you have the top Republican hopefuls talking about the need for “fair trade” rather than free trade. Donald Trump has suggested that to protect American jobs and to bring back some jobs that have gone offshore (or maybe north of the border), he is threatening to impose tariffs on imported goods to make trade more “fair.” He has also talked about currency manipulation among America’s key trading partners. So far he has referred specifically to China and Japan and not Canada. He has also talked about building an actual wall between Mexico and the USA and deporting millions of low wage earners from Mexico and other Central and South American countries (who play a key role in keeping costs down for American citizens).

Political candidates often make promises and engage in inflammatory rhetoric to attract votes. The question is whether the new President will follow through on some of these promises.

Canada-U.S. Trade

Canada has much to worry about. Canada is the largest trading partner for 35 of America’s 50 states. Historically we have been America’s largest trading partner. China has recently surpassed Canada in the number one spot. About seventy-five percent of Canadian goods are exported to other countries. In other words, Canada is highly dependent on trade with other countries, specifically the United States. About $1.8 billion in goods and services are exchanged between the two countries every day. Donald Trump’s promise to “Make American Great Again” is heavily dependent on bringing jobs back to America. While raising tariffs on some imported goods might reduce imports to the United States, America has a much higher cost structure. If factories are established in America to build these products, this would be very inflationary to American citizens. If pressure is placed on Canada to increase the value of its currency, this would also injure sales of Canadian products.

Stay Tuned

It is clear that many Americans are fed up with the political elites in Washington. They are fed up that their elected senators and representatives who cannot negotiate and reach agreements on issues that are in the best interests of American citizens. The unprecedented and historic Donald Trump phenomenon is clearly sending a message throughout America and around the world. If he wins, he will have a mandate to make changes. The fact is that every Canadian should be paying close attention the U.S. election. It could have profound consequences for Canadian shippers and carriers.

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