By Alan M. Field
Although the American presidential election won’t take place until November, this much is clear: Almost nothing to date has gone according to the usual script. The victory of Donald J. Trump in the drawn-out primary elections for Republican presidential candidate has taken virtually everyone by surprise, not just in North America but around the world. The ascension of 70-year-old Trump, a real estate tycoon with no previous experience in politics, has delighted his ardent supporters while disturbing not only Americans of various political ideologies but many Canadians from a wide range of backgrounds.
What kind of impact would a Trump Presidency have on economic and trade relations between Canada and the United States? In what respects do Canadian viewpoints about Trump resemble – and differ from – those in the United States? What kinds of new and unique risks will Canada face if Mr. Trump were sworn in as President of the United States next January?
For both Canada and the U.S., the bilateral trading relationship will continue to be uncommonly significant. According to the U.S. Census Bureau, Canada was responsible for 15.3 per cent of all U.S. foreign trade in April 2016; a higher percentage than for any other country, including second-ranked Mexico (14.8 per cent) and third-ranked China (14.7 per cent). For the U.S., Canada is the largest single export market (18.6 per cent of U.S. exports) and its third-largest source of imports (13.1 per cent). From Canada’s perspective, according to Statistics Canada the U.S. is Canada’s most significant trading partner by a far more significant margin than that, accounting in 2014 for 10 times more Canadian imports from and 20 times more Canadian exports to China, which was Canada’s next largest trading partner.
Canada’s close relationship with the United States brings both positives and negatives, says Corinne Pohlmann, Senior Vice-President of National Affairs with the Canadian Federation of Independent Business (CFIB). While Canadians often share in America’s growth, reliance on its more volatile neighbour can lead to uncertainty, especially under new leadership, noted Pohlmann. Of CFIB’s 109,000 privately owned member companies, 50 per cent import from and 25 per cent export to the United States.
For Canadians, amusement, amazement and anxiety
Canadian reactions to Trump can be divided into three stages, says Janice MacKinnon, a former Minister of Finance for the province of Saskatchewan and current professor of public policy at the University of Saskatchewan. “First, some people are amused; they listen to his comments and they think they are so outrageous. ‘They’re funny; how could somebody say that?’ They are also amazed that somebody like that could potentially be President of the United States. Third, the more thoughtful ones are anxious about what it would mean,” she adds. Why anxiety? “One thing business really needs is predictability and certainty going forward: what are the rules of the game?” says MacKinnon. “Certainly under Trump, there’s much greater danger that there’s some dramatic change in the rules of the game than under [Hillary] Clinton, who has been around and has experience and understands that changing the rules has dramatic consequences.”
Despite her apprehensions, MacKinnon doesn’t believe every aspect of a Trump Administration would necessarily be harmful for Canada. She notes that the Republicans are eager to move forward on the Keystone XL pipeline, which would provide a significant economic boost to the struggling province of Alberta. However, she is fearful of the infectious spirit of protectionism commonplace among Trump’s followers. “It’s common in the United States, when they get into difficulty and people are struggling and they can’t explain why they’ve lost their jobs and why these manufacturing jobs are leaving, it’s a very common reaction to turn to protectionism,” she said. “It’s a very protectionist [election] race, and we should be nervous about it.”
Given Trump’s volatility and the fuzziness of his policy directives, “it is very hard to pin down what a Trump Presidency would actually constitute,” argues Jason Clemons, Executive Vice-President of the Fraser Institute. “What is much more worrying is the great likelihood that Trump would use the regulatory state to do a number of things that would damage Canada-U.S. relations. Particularly on the trade file.”
Canadian-born Todd Gabel, economics professor at University of Texas Arlington argues, “Trump’s rhetoric is largely targeted south of the border,” not at Canada. Canada is barely mentioned in any of his speeches, apart from an occasional reference to the Keystone XL pipeline, a project on which Trump wants the U.S. government to earn a profit. “Not even Trump is saying that U.S. jobs are moving up to Canada. Even though Trump is talking about getting rid of trade deals, it is more likely that Canada won’t be affected” by any protectionist measure he might take as President. Given the common Anglo-Saxon and European heritage shared by most Canadians and Americans, Trump has not been accused of targeting Canada on the basis of xenophobia or racism, as he has in the case of Mexico and countries that have large Muslim populations.
The impact of trade protectionism
The challenge of predicting the potential impact of Trump on Canada is compounded by other factors that are disturbing to many Canadian shippers, corporate executives and policy makers: First, both Trump and Hillary Clinton have made vehement opposition to key free trade agreements – including the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership – a cornerstone of their campaign platforms. This, despite the fact that Mrs. Clinton has favored the TPP in the past, and has been a supporter of NAFTA, which was championed by her husband, former President Bill Clinton.
For his part, Clemons says, “As an outsider, what is incredibly interesting is that on most issues, Secretary Clinton is actually more conservative than Mr. Trump. She certainly has a more developed world view, and a more developed, nuanced view of trade and relations between countries. But the reality is that both parties have shifted decidedly towards protectionism and nationalism. So the question in the Democratic Party is: What does a President Clinton actually have to do, given her commitment to Senator Sanders and others in the party? Because one of Sanders’ key issues is trade.” Clemons adds, “you have both major parties shifting decidedly toward protectionism and nationalism. Which, given the integrated nature of our economy, obviously poses and enormous problem for Canada.”
Moreover, few voters in the United States have more than a smattering of knowledge about the Canadian economy or government. Thus, few are mindful of the degree to which the Canadian and U.S. economies are integrated with one another, and jointly depend on NAFTA to keep their economies moving smoothly. However, notes Clemons, “there is also the reality – particularly if you look at the I-76 corridor for manufacturing – that it is an integrated supply chain. Secretary Clinton clearly has a better understanding of this, whereas Mr. Trump has a very naïve, superficial view of trade, and thinks that the U.S. trades finished goods to other countries for finished goods.”
“There are parts in the TPP that are extremely important for Canada”
Overall, Clemons adds, “In large measure, it is very hard to pin down what a Trump presidency would actually constitute. The real concern here is that it’s just not clear what Mr. Trump is going to do [or would do as President]; he is so, almost erratic, in terms of what he says. And his instinct is to act unilaterally. President Obama has extended what President Bush did on this front, in terms of acting unilaterally in areas where they have [had] authority. A Trump Presidency extends that even further. And depending on how he does these things, or to the extent to which he does them, they could be incredibly damaging for the Canadian economy; and therefore for Canada-U.S. relations – which are already suffering quite a bit, from a Canadian perspective, from the prolonged period of tension between Prime Minister Harper and President Obama.”
Notes MacKinnon, “There are parts of the TPP that are extremely important for Canada; the TPP is very, very advantageous [for Canada].” And yet, “it looks like no one in the U.S. is prepared to try to implement the agreement, even though the American President [Obama] led the charge in signing it.” In both Canada and the U.S., many observers don’t know how much to make of Trump’s most audacious statements, or how much to read into his silence about most things Canadian.
Although Trump is uniquely offensive and capricious, MacKinnon argues that “Canadians are used to” watching American candidates take extreme positions during election campaigns, and then ignore those positions after they win office. She adds, “So [Canadians] kind of wait it out. They are used to things being said during elections and then when the election is over, it doesn’t really turn out that things are as dramatic.”
Three key issues where Trump could quickly damage U.S.-Canada ties
On the other hand, argues Clemons, “The way that the [Obama] administration has treated Canada” with regard to several issues — the most noteworthy of which is the Keystone XL pipeline – “is not emblematic of the historic relationship that the two countries have had” in the past. “For the United States to take the amount of time that it has taken to turn down Keystone is not reflective of the relationship that the two countries have had historically. You can also add to that the Buy America First project that was part of the [Obama Administration’s 2009] stimulus bill, and add on the Country of Origin rules. There were a whole bunch of things that were done in the current Administration from an administrative perspective that caused real problems for the trade relationship between the two countries. If we look on the horizon, a key issue in western Canada is going to be the renewal of the Softwood Lumber Agreement. It is very unclear to most people in the policy world what a Trump Presidency would mean, given that there’s not a lot of presidential oversight anymore. These actions are largely done in the executive branch [of the United States]. That’s not the design of the system, but that is the reality; they are largely done by executive order or by regulatory fiat. Meantime, great damage can be done to local and regional economies.”
More menacing still, a President Trump would not need to rely entirely on support from the U.S. Congress to impede the flow of goods and services across the Canada-U.S. border. “Intermediate goods are passing across the border constantly,” notes Clemons. “From a Canadian perspective, if that is disrupted by new trade regulations or country of origin regulations, there are a whole bunch of things that a President Trump could do by executive order or through the regulatory state.” And if this leads to disinvestment in Ontario or Quebec, those things [plants] are not going to come back [to Canada] …That’s not just a short-term blip; that could have long-term ramifications for manufacturers and related industries in southern Ontario and part of Quebec.”
To illustrate the regulatory might of the U.S. executive branch, Clemons noted, “How many times did the Congress pass approval of Keystone and the President [Obama] said no, and the EPA dragged it through [approval process]?” President Obama was able to drag that out for six years; that had incredible costs to the companies!” He warns also that Trump could have a negative impact on Canada by addressing two other issues. First, the Softwood Lumber Agreement expired in October of 2015, and currently operates under a provision of the Agreement that keeps it in effect until October of this year; and “it would be very easy for a President to come in and say ‘I’m not interested in that deal’ and say, ‘Take us to the WTO [World Trade Organization] and we’re going to drag this out for six to eight years.’ Which is what already happened once.”
Second, he adds, “Canada is on the cusp of legalizing marijuana. No doubt, that’s going to have issues at the border both in terms of legal trade and the potential increase in illicit trade of marijuana.” Overall, Clemons concludes, “As a trading country, about one in two jobs in Canada is directly or indirectly related to trade. And over 70 per cent of our trade is with the United States. So these issues are going to be material in terms of Canada’s wellbeing and our ability to create good jobs. Any other country would be hard-pressed to make an argument that – to the extent that Canada has interest in the outcome of the U.S. election — it’s hard to look at any other two countries that have that kind of [close] relationship.”
More ponderables
Trump has asserted that, under his Administration, the U.S. would demand that Canada and other NATO members would pay their “fair share” of the cost of maintaining the North Atlantic U.S. Defence shield. Whereas NATO guidelines call for national Defence spending of 2 per cent of GDP by each of the 28 member states, only the U.S., Greece, the U.K., Estonia and Poland currently meet that target – Canada ranks 23rd on the list with Defence spending running at 0.99 per cent of GDP.
Trump has also asserted that under his Administration, the U.S. would abandon NAFTA and the World Trade Organization, moves that would thoroughly upset the flow of trade between the U.S. and many of its trading partners, especially Canada – and confound the plans of North American corporations dependent on global supply chains and free trade.