Donald Trump beat the odds and surprised analysts, pollsters and pundits by winning the presidential election November 8, while the Republicans took both the Senate and the House.
There is uncertainty about what this win could mean for Canada. Trump has expressed strong opposition to the TPP and said he would renegotiate the WTO treaty. As well, he said he would make sweeping changes to NAFTA or perhaps even do away with this agreement altogether, which is within his power, provided he give six months notice to Congress.
“If Trump takes unilateral steps to withdraw from NAFTA, Canadian exporters and importers would be hurt by disruptions to tightly integrated supply chains across borders,” said Douglas Porter and Sal Guatieri of BMO Capital Markets.
“The relative increase in U.S. company competitiveness from tax cuts could also undermine Canadian exporters, especially if Canadian firms need to pay more for a greener environment.”
Nothing is certain, however, because U.S. economic growth fueled by these changes could actually end up being good for Canadian exports.
As well, a Trump presidency makes the approval of the Keystone XL pipeline more likely, which would be welcomed by oil producers on this side of the border. However, Trump has said he would support this pipeline only if TransCanada were to give the U.S. “a big, big chunk of the profits, or even ownership rights.”
Trump’s platform calls for a 45% tariff on imports of Chinese goods and a 35% tariff on Mexican goods. These moves, said Porter and Guatieri, may have significant impacts on U.S. consumers.
“Punitive tariffs on Chinese and Mexican goods—which account for 30% of U.S. imports—would lead to higher prices and less purchasing power for American households,” the BMO economists wrote in a report issued November 9. “The president can impose temporary tariffs of up to 15% to address large current account deficits without congressional approval.
“Retaliatory action from China and Mexico could impact a fifth of U.S. exports.”
The full economic story has yet to be written
Although stocks had been trading inversely to how well Trump had been performing in polls, the TSX Composite Index was up more than 118 points or 0.82% as of press time. Oil had reversed its early losses of almost 4% to trade above $46 as of the morning of November 9. Traders cite a “conciliatory” speech by Trump as a reason for a steadied dollar post-win.
“Overall, while the changes in policy might not be as drastic as the platform he ran on, this was an unexpected outcome and will likely lead to sharp movements in asset prices,” CIBC Economics’ Royce Mendes and Avery Shenfeld said in a note to investors.
“Some of the initial reactions might however be reversed as Trump walks back some of his more extreme claims or Congressional Republicans take a stronger stance against them.”
The Committee for a Responsible Federal Budget, a Washington, D.C.-based bipartisan policy group that examines fiscal and budget issues, said Trump’s plans as outlined in his campaign platform could double the U.S.’s budget deficit to 5% of GDP per year. This could add $5 trillion to the debt in the next 10 years.
Some financial aspects of Trump’s platform are summarized below
In the CIBC report, Mendes and Shenfeld said Trump may face challenges in enacting his ambitious campaign promises pertaining to taxes and spending.
“Even though both the executive and legislative branches of the government are now controlled by Republicans, Mr. Trump doesn’t have a free pass,” they said.
“Some Congressional fiscal conservatives aren’t likely to agree with the full extent of his plans to cut taxes without seeing similar cuts to spending, which might be difficult to identify without hitting politically sensitive discretionary items.”
The president-elect had previously said he will replace Fed chair Janet Yellen in February 2018, when her term expires, because she is “not a Republican.”
“If he selects a less-dovish leader (not a challenging task), we could see a more aggressive Fed in 2018,” BMO said in its report.
Trump’s plans to deport illegal immigrants and slash immigration, if carried out, while the country is close to full employment could lead to higher wages.
Who could benefit from Trump’s surprise win?
Energy sector: Fewer restrictions and more pipelines would be welcome news to oil and coal producers.
Big banks: The election results could be good for large financial institutions as the Republicans said they intend to repeal certain aspects of the Dodd-Frank Act. This act, which sought to reform Wall Street, was signed into law by President Obama in 2010 in response to the 2008 financial crisis.
Defence companies: Promises of more federal spending on defence could lead to wins for companies in that sector.
Who stands to lose?
Renewable energy:Donald Trump does not believe in climate change, famously saying it was a myth created by China. He is not in favour of wind turbines and is unlikely to support environmental initiatives and green jobs. Trump said he supports the use of fossil fuel, including coal.
Railways: An increase in pipelines to carry oil could be a boon for railways.
Trump is set to be sworn in January 20, 2017.
Following are some of the key points in Trump’s campaign platform (as summarized by BMO Capital Markets):
Trade: Will end or greatly modify NAFTA. Opposes TPP and plans to renegotiate WTO treaty
Corporate tax: Cut corporate tax from 35% to 15% and allow U.S. firms to repatriate foreign earnings at 10% tax rate
Personal tax: Reduce the number of tax brackets from 7 to 3. Rates would be 12%, 25% and 33%. The highest tax bracket would apply to couples earning more than $300,000, with the top tax rate reduced from 39.6%. Standard deductions would be increased so that single individuals earning less than $25,000 and married couples earning less than $50,000 would pay no income tax.
Energy and pipelines: Supports Keystone XL, with conditions. Supports coal. Said he would open up more areas for energy drilling.
Banking: Repeal or change Dodd Frank Act. Reinstate Glass-Steagall Act.
Federal Reserve: Will replace Yellen in 2018. Wants to audit the Fed.
Government spending: Increase infrastructure spending to double the amount proposed by Hillary Clinton. Cut government spending, but has said he will not cut social security or medicare. Boost spending on defense and homeland security.
Environment: Does not believe in climate change and does not support green initiatives. Supports use of fossil fuel and coal. Opposes wind turbines.
Labour and minimum wage: “Open” to minimum wage hikes at the state level. Said he would require firms to hire workers from the U.S. before issuing green cards to foreign workers.
Foreign policy: Trump wants China to be labeled a currency manipulator and said he would try to force that country to uphold patent laws. May not honour NATO treaty and said he would disengage the U.S. from its military involvement in other nations.
Healthcare: Wants to repeal ACA and replace this with private health insurance plans with premiums paid by government via tax deduction. Said he would work to reduce prescription drug costs.
- With files from the Daily Oil Bulletin
@EmmaHampelBIV
