As our neighbours to the south head for an election, promises are being made that could have a real impact on Canada’s economy.
Jobs and the economy are the most mentioned topics on the U.S. presidential campaign trail, and stern proposals from Hillary Clinton or Donald Trump on those issues could have a ripple effect on Canada, experts say.
But the politician’s bark is usually worse than their bite, says a TD Economics special report. For one thing, politicians often change their tune once they’re in office.
“There is this tendency for there to be this ‘America first’ rhetoric in campaigns,” said Leslie Preston, senior economist with TD Economics and co-author of the report.
“Once you’re in power and you do the hard analysis you see how much protectionism hurts your own businesses.”
Trump has said he would renegotiate or break the North American Free Trade Agreement (NAFTA) and called the Trans-Pacific Partnership (TPP) a “horrible deal.” The presumptive Republican nominee has also touted a 45 per cent tariff on Chinese goods and a 35 per cent duty on Mexican goods entering the U.S.
“Going around and ripping up free trade deals is not…how to make friends and influence people,” said Colin Cieszynski, chief market strategist with CMC Markets.
Cieszynski believes that changes to NAFTA are unlikely, but the not-yet-approved TPP could still be vulnerable. But the president can’t make such decisions on their own — Congress must approve. And changes to trade agreements are likely to hurt the U.S. more than help its economy.
“Free trade deals are actually pretty good for the United States. I think in a lot of cases they’ve done very well. And their businesses figure out how to compete under those kind of rules,” said Cieszynski.
Canada’s economy is undoubtedly tied to the United States; about $1.5 billion in goods cross the border every day. Preston says that relationship can’t be taken lightly.
“Seventy-five per cent of Canada’s exports are destined for the U.S. So it is our most important market and trading partner,” Preston said.
The shock of lower oil prices has kept Canada’s domestic economy on its toes, Preston says, and exports are more important than ever to grow the economy.
“I don’t think Canadians need to worry about the most extreme of the promises,” said Preston.
“I do think Canadian policymakers do need to be vigilant when you see this rise in protectionism in the U.S. because they are a key partner.”
Canada is not a source of cheap labour, so we are unlikely to feel the same wrath as counties such as Mexico and China, countries sometimes blamed for “stealing jobs” from Americans.
Preston says most of the rhetoric is aimed elsewhere.
“Canada’s not really a low-cost jurisdiction,” said Preston. “These actions are unlikely to be directed at Canada. That said, we are part of NAFTA, and to the extent that NAFTA’s damaged it does hurt us but I don’t think Canada is the main target for anti-trade sentiment in the U.S. election campaign.”
Cieszynski agrees that while Canada isn’t the target, it could “lose” by being party to an agreements that the U.S. decides to go after.
“I think that the U.S. has bigger issues to deal with than Canada. But it is true that Canada could get caught in the crossfire.”