A new leader for Canada’s biggest customer is more than a political curiosity in this country. It’s an economic game-changer.
The relationship between Canada and the United States reached a new high-water mark recently when U.S. President Barack Obama hosted a March 10 state dinner in the White House for Prime Minister Justin Trudeau. But the warmth of that relationship and the high regard both leaders have for each other will have little transferable effect when a new president moves into the Oval Office following the November 8 presidential election in the United States.
In the lead-up to election day, business leaders in this province will be watching to see which of the four main contenders — Bernie Sanders, Hillary Clinton, Donald Trump or Ted Cruz — would support the economic policies most beneficial for Canada-U.S. trade. (For good measure, we've also taken a look at Republican contender John Kasich.)
Business in Vancouver surveyed economic and political analysts to get a read on some of the answers to those questions.
Bernie Sanders promises to make the United States look a little bit more like Canada, with a single-payer health-care system and a narrower gap between the rich and poor.
The folksy 74-year-old senator from Vermont appeals to younger, college-educated voters, promising free university tuition and often speaking of his campaign as “the people’s revolution.”
While he seemingly couldn’t be further from Donald Trump, Sanders, like Trump, has targeted free trade deals like the North American Free Trade Agreement (NAFTA) as a source of pain for ordinary Americans. Sanders has promised to reopen NAFTA and other agreements with Central American countries and China.
While Sanders is mostly targeting lower-wage countries that have drawn manufacturers away from the United States, Canada could get caught in the crossfire of anti-trade sentiment.
“But we are the largest trading partner with the U.S., and the U.S. is overwhelmingly our largest market for goods, so the fear in Ottawa has always been that we would be collateral damage,” said Richard Johnston, a professor of political science at the University of British Columbia (UBC).
Bernie Sanders | Crush Rush/Shutterstock
The negative effects of free trade – lost jobs and lower wages – are a bigger part of the political conversation in the U.S. than they have ever been before at the presidential level, said Rafael Jacob, a political science professor at the University of Quebec at Montreal. He’s surprised anti-free-trade sentiment has taken this long to bubble to the surface, especially considering the long-lasting effects of the 2008 financial crisis.
“These are people who have never voted in the past, feel repelled by the political system and feel that the elites are really out of touch with them,” Jacob said, referring to the populist dynamic propelling the campaigns of both Sanders and Trump.
“There’s very little discussion on issues that for them have absolutely major and in some cases devastating consequences.”
Sanders, who has taken direct aim at Wall Street and the high level of income inequality in the United States compared with other developed countries, wants to strengthen America’s social safety net. UBC political science professor Paul Quirk said the lack of help for working Americans during the era of liberalized trade has led to the current wave of anti-trade feeling.
“If you have a robust enough social safety net, that takes care of it all,” Johnston added. “If you don’t, then you have to make special deals that specifically [smooth the transition]."
In this very unusual election, Hillary Clinton is the one known element. The former first lady, senator for New York and secretary of state is widely expected to win the Democratic nomination.
But the undertow of this election is drawing even this familiar candidate off-kilter when it comes to issues like trade. Donald Trump, Ted Cruz and Bernie Sanders all oppose the Trans-Pacific Partnership (TPP), a free trade agreement between 12 Pacific Rim nations that has been signed, but not ratified, by the United States and Canada.
In Canada, the incoming Liberals have been careful to indicate they support the deal, while promising to scrutinize its contents closely before approving the agreement.
“Hillary Clinton might be the only candidate we don’t know for sure how she would act with regards to the TPP,” said Jacob.
While Sanders has little chance of winning the nomination, his support has been significant and at times surprising, as when he came from behind to win the Michigan primary. That’s led Clinton, who throughout her political career has generally supported free trade, to take a more ambiguous stance.
Hillary Clinton | A Katz/Shutterstock
“The investment in automobile production in Ontario has really diminished, and the shift in the exchange rate, which is working to our advantage for the time being, might increase pressure on the northern border in terms of integrated production,” said Johnston. “If I was in Ontario, I would worry about that Michigan result.”
It’s unlikely Clinton would reopen the longtime NAFTA agreement as Sanders has suggested. But the yet-to-be-completed TPP is another question: while Clinton has in the past called it the “gold standard” for trade deals, she has recently been more critical of the agreement.
“It’s the single biggest issue for Canada that could be decided by the election,” Jacob said.
Should Clinton win the Democratic nomination, a pro- or anti-free-trade stance from her rival could push her to either support or oppose the deal. Should she win the presidency, a U.S. Congress supportive of the TPP, plus international pressure, could also tip the scales toward support.
“To me the position that her campaign is currently holding to oppose TPP – it really looks like posturing,” Jacob said.
A President Hillary Clinton would largely continue the same policies as Barack Obama, such as expanding Obamacare and continuing action on climate change like reducing the use of coal-fired power plants.
In November, Clinton broke her long silence on the proposed Keystone XL project, saying she opposed the Alberta-to-Texas pipeline because of its effect on climate change.
Canada-U.S. trade is likely to suffer a setback if Republican front-runner Donald Trump becomes U.S. president, while immigration could be more difficult and relations between the two countries’ leaders is likely to be prickly.
On the other hand, he is amenable to agreeing to the Keystone XL pipeline, should TransCanada Corp. (TSX:TRP) reapply for the route to export Albertan oil, as long as the U.S. gets 25% of the profits.
“If Trump becomes president, there’s little upside for Canada in terms of improving trade relations with the U.S.,” said Steven Globerman, an international business professor at Western Washington University and a senior fellow at the Fraser Institute. “There’s a lot of potential for downside in the form of even more than usual anti-dumping and particularly countervailing duties.”
A new softwood lumber agreement is also likely to be elusive because Trump has largely based his campaign on a strong stance against trade deals, Globerman said.
There’s little reason for him to oppose the long-standing U.S. view that B.C. unfairly subsidizes lumber producers.
Trump has described the Trans-Pacific Partnership as “a disaster,” and Globerman believes the firebrand candidate is the most likely in the Republican field to veto that 12-country trade pact, should he be elected president – assuming the deal makes it through the U.S. Congress.
Donald Trump | Joseph Sohm/Shutterstock
Trump has also threatened to renegotiate NAFTA, although Globerman said he believes that this is “a bridge too far for anyone at this point.”
U.S. technology companies have been lobbying for the U.S. government to make it easier to hire workers using H-1B visas. Those are non-immigrant visas often used by foreign workers in skilled occupations that require expertise in specialized fields.
Globerman does not see any candidate significantly easing immigration policy, including the H-1B visa class.
He adds, however, that much vitriol spewed by candidates is aimed at Mexico, not at Canada.
Corporate inversions, such as the US$12.5 billion transaction that created Oakville-based Restaurant Brands International (NYSE:QSR) in late 2014, when Burger King and Tim Hortons merged, have also been in Trump’s crosshairs.
He regularly lambastes companies such as Ford (NYSE:F) and Nabisco (NYSE:NGH) for moving operations offshore and has talked tough about China’s use of a low currency to artificially stimulate a huge trade surplus with the U.S.
Capilano University political science instructor Ramjee Parajulee believes much of what Trump says should be taken with a grain of salt.
“Once politicians are in power, they have a tendency to modify their positions,” he said.
“Trump talks tough, but, in the implementation phase, ruling a country is different than just talking.”
Canadian-born Republican candidate Ted Cruz says he supports free trade and he has made impassioned pleas to reject high tariffs, but a Cruz presidency would likely not help Canada expand trade with the U.S.
Cruz voted against trade promotion authority, which is the U.S. legislation that granted President Obama fast-track authority on trade agreements and keeps Congress from being able to offer amendments to trade pacts such as the TPP.
Cruz has said that he will vote against the TPP although some doubt he will.
“If Congress approved the TPP, Cruz would certainly sign off on it,” said Globerman. “Cruz is a a free-capital-markets guy. He believes in capital markets and that they should be allowed to work to move money to where the rate of return is highest.”
Indeed, Cruz is sometimes viewed as a free-enterprise ideologue because he holds ultra-conservative views such as implementing a flat 10% tax on income and eliminating the Internal Revenue Service.
Ted Cruz | Andrew Cline/Shutterstock
His passion for low tariffs came through in a March 10 debate where he skewered Donald Trump’s threat of implementing a 45% tariff on Chinese goods if the Chinese government does not, in Trump’s words, “behave.”
“The effect of a 45% tariff would be, when you go to the store, when you go to Walmart, when you’re shopping for your kids, the prices you pay go up 45%,” Cruz said.
“A tariff is a tax on you, the American people, but the response of that is that the countries we trade with put in their own tariffs.”
Cruz is also an enthusiastic supporter of pipelines, which he said he will approve across the country.
He ripped into Obama for rejecting the Keystone XL pipeline and echoed former prime minister Stephen Harper when he said that Keystone was “as close to a no-brainer as any decision you will find in politics.”
Skilled Canadians wanting to work south of the border could find it more difficult, however, given that Cruz’s website says that he will “suspend and audit H-1B visa and halt any increase in legal immigration so long as
American unemployment remains unacceptably high.”
Capilano University’s Parajulee said that although all candidates, in primary season, tend to take more extreme positions to appeal to a core base, Cruz is more likely than most to stand firm on his pledges.
“Cruz is an ideologue [while] Trump just says whatever he is thinking at the moment,” Parajulee said.
Widely seen as the most moderate of the three remaining Republican candidates, John Kasich could be the one who is best able to forge strong relations with Canadian Prime Minister Justin Trudeau.
As a Congressman in the 1990s, Kasich supported the North American Free Trade Agreement (NAFTA) and he has since reiterated the strengths of free trade more generally.
He is the only remaining Republican in the field to explicitly support the Trans-Pacific Partnership (TPP). In a debate last fall, he called the pact with 12 Asia-Pacific nations “critical” to the U.S.’s future.
“He is sensitive to the auto industry, given that he is from Ohio, and I think what that means is that he pays some attention to [manufacturing] investments - are they going into the U.S. or to Mexico or to Canada,” said Steven Globerman, who is an international business professor at Western Washington University as well as a senior fellow at the Fraser Institute.
John Kasich | Andrew Cline/Shutterstock
“He might have a bit of an issue on auto trade but I haven’t heard anyone [among the survivors in the Rupublican field] say Canada is trading unfairly when it comes to auto trade. It’s Mexico. That’s where the new investment is going. Most of this rhetoric is focused on Mexico, not Canada.”
As a result, Canadians should not expect a backlash on trade if Kasich somehow pulls out a miracle and wins the support of his party at a brokered convention in August in one of his home state’s largest cities, Cleveland.
Unlike front runners Donald Trump and Ted Cruz, who can win the nomination on the first ballot, Kasich can not because there are not enough remaining delegates even if he won every one.
Kasich is also comparatively liberal on immigration.
He supports expanding a guest-worker program and has called Trump’s calls to deport 11 million illegal immigrants currently in the country “silly.”
He also has spoken passionately about the need to keep families together and to have immigration policies that support that.