In the wake of last week’s shocking U.S. presidential election outcome, political and business observers scrambled to make sense of what a Donald Trump presidency will mean for Canada.
If Trump makes good on his promises, trade relations could be strained, B.C.’s forestry sector could be in for some pain, Canada will move forward on climate change and carbon pricing while its next-door neighbour moves backwards, and Ottawa may be forced to increase military spending to stay in America’s good graces as a member of NATO.
However, as a number of pundits have pointed out, Trump has demonstrated a tendency to say things he doesn’t mean for expediency.
“It’s hard to know how seriously he took those promises, or whether he said them because he thought they would play well,” said Keith Head, a professor specializing in international trade at the University of British Columbia’s Sauder School of Business.
Even on those platform promises that Trump will attempt to fulfil, like renegotiating the North American Freed Trade Agreement (NAFTA), or withdrawing from it altogether, he may find it easier said than done.
“I think that we have to remember that, while there’s some very strong protectionist inflammatory statements made by president-elect Trump, at his core, he is a business person, and a business person knows that relationships [are] the core of doing business,” said Iain Black, CEO of the Greater Vancouver Board of Trade.
One province that may benefit from a Trump presidency is Alberta, since Trump has said he wants the Keystone XL pipeline resurrected.
“In general, the oil industry should be in a more favourable situation because Trump doesn’t believe in climate change,” Head said.
B.C. could be hard hit under a Trump presidency, since his protectionist bent bodes ill for getting a new softwood lumber agreement with the U.S. Forestry products are B.C.’s No. 1 export and the U.S. is its biggest customer.
The agreement has expired and B.C. lumber producers now face the prospect of countervailing duties being applied to B.C. lumber exports.
“At the end of the day, that’s the one that probably worries me the most,” Black said. “Not that we won’t have a softwood deal. It’s that it will take a lot longer to get there because the motivation won’t be there. The negotiators will not be spurred along by a president who desperately wants trade deals done.”
Stocks for B.C.’s three big forestry companies – Canfor Corp. (TSX:CFP), West Fraser Timber (TSX:WEF) and Interfor Corp. (TSX:IFP) – were down 4% to 5% the day after the election.
But overall, to the shock of some observers, North American stock markets responded positively to Trump’s surprise victory.
As the polls began to tighten, some analysts predicted markets would react to a Trump victory the way they did to Brexit, with stocks tanking and gold rising. In fact, gold prices barely moved and the Dow Jones, S&P/TSX and Nasdaq were all up on November 9.
Mickey Fulp, the American publisher of the Mercenary Geologist and keen market observer, said it should come as no surprise that Wall Street should react favourably to one of their own taking up residency in the White House.
“We elected a professional New York City businessman who is a deal guy, who wants lower corporate taxes, who’s very anti-regulation, and what would financial markets want more than that?” Fulp said.
One thing observers are fairly certain about is that the Trans Pacific Partnership (TPP) trade deal – to which Canada is a signatory – is dead.
“I would find it very difficult to see that TPP is going forward because without America the deal falls apart,” Black said. “So that one looks pretty much dead on arrival.”
As for NAFTA, Trump has called the deal a “disaster” and wants to renegotiate it. Failing that, he has vowed to withdraw the U.S. from the deal, which would mean a range of trade duties on goods flowing to and from the U.S.
The question is whether Republicans will support Trump on his NAFTA renegotiation plans. As Black points out, Canada is the largest customer for more than 30 U.S. states, and many Republicans may not support revisiting it.
“He would need the support of Congress and the Senate to do that, and my sense is he would not get that support because, by and large, Republicans are free traders,” Black said.
Head, who is American, isn’t so sure about that. He said many Republicans also have a protectionist bent, and renegotiating NAFTA is one promise Trump is likely to follow through on.
“In multiple debates he says that NAFTA is the worst trade agreement ever, ever, ever. So I don’t think you can really walk that back and say ‘Oh I really think it’s fine.’”
One of the stranger things to happen in last week’s election was a referendum in Washington state in which a proposed carbon tax was defeated thanks in no small part to environmental groups like the Sierra Club.
Initiative 732, which would have seen the implementation of a revenue-neutral carbon tax similar to B.C.’s, was voted down. The Sierra Club and other environmental groups didn’t like the idea that the tax would be revenue-neutral and campaigned against it.
“Essentially, they were not willing to sign on to a market-based instrument unless they got this double-dividend green fund on top of it,” said Werner Antweiler, associate professor at the Sauder School of Business.
Countrywide, the prospects for any real climate change policies in the U.S. are even dimmer now. Trump’s platform includes a plan to “unleash” America’s oil, natural gas and coal reserves and roll back regulations on coal power. His planks on the environment and climate change are non-existent.
“We actually are seeing the U.S. moving in the opposite direction, and that leaves a situation where we’re ramping up carbon prices in Canada when the United States isn’t going to have any carbon policy,” Antweiler said. “And that certainly runs the risk of putting some Canadian businesses at a disadvantage.”