E-Sight November 9: The implications of a Biden presidency for Canada

This is a particularly lengthy E-sight, but there is a lot of ground to cover and the issues are material for Canada. So, I hope you don’t mind the longer-than-normal word count.

On Saturday, the press declared Joe Biden as winner of the presidential election. President Trump has launched legal challenges, but they are not expected to change the outcome. Biden’s scope to advance his agenda will be constrained if the Republican’s retain control of the Senate. However, Biden is a moderate Democrat and has a long history on the Hill. Many Republicans respect him, even if they disagree on specific policy measures. Biden is likely to have bipartisan representation in his cabinet and strive for bipartisan support for his efforts, which as a moderate, makes it more likely he will get things done even if there has to be compromise. 

The President has considerable authority on portfolios relevant to Canada – such as international trade, migration, foreign policy and elements of regulation. As such, Biden’s victory in the presidential election carries many implications for Canada. Let’s run through a few:

Health Risks

The COVID-19 pandemic is accelerating in North America. President-elect Biden understands that the single greatest priority should be getting the pandemic under control and eventually deploying a vaccine. Under a Biden Administration, US health agencies and their leadership will likely be less political. He will put greater weight on professional scientific guidance on how to combat COVID-19. Biden has already named his C19 taskforce, consisting of leading doctors and scientists.

Moreover, the White House will no longer be looking to repeal the Affordable Care Act. The President-elect has also signaled that the US will reengage with the World Health Organization (WHO) – both dimensions which could help support US containment.

Ultimately, the more successful the US is at fighting the war against COVID-19, the stronger the North American economy will be. 

Fiscal policy and the economy

If dealing with the health risks is Priority#1, this is closely followed by supporting unemployed workers and hard-hit businesses. Capitol Hill knows the recent loss of government emergency support programs is posing a clear and present danger to the economic recovery. Any setback for America’s economy would significantly impact Canada’s economic performance.

Debate in Washington will be around the size and elements of a fiscal package. The Democrats generally favour a larger package than the Republicans. The Biden Administration will have to work with Congress to negotiate an agreeable fiscal stimulus package. One challenge is that Biden will not be inaugurated until January 20, 2021 – which is months away. The economy needs support now. It is constructive that Senate Majority Leader Mitch McConnel is reportedly taking the lead on stimulus talks without White House involvement, but time will tell what can be negotiated.

One contentious issue from Biden’s election platform is a proposed $700 billion Buy America program, which is aimed at fueling the recovery. This includes $400 billion procurement investment, which is protectionist in nature and could put Canadian firms that sell in America at a disadvantage. The Government of Canada will need to try to negotiate an exemption on the basis of our strong trade ties and deep supply chain integration.

In his election platform, Biden said he would raise taxes on high income earners (i.e. incomes above $400,000) and increase the corporate tax to 28%. Without Democrat control of the Senate, these measures will be hard to pass. Tax hikes will also not be the first priority of the Biden Administration. Tax increases would hurt the US economy at a time that it is trying to recover from the worst recession in modern history. As such, any significant tax changes are likely to be delayed to later in Biden’s term. The implications for Canada of higher US taxes are mixed. To the extent they hurt US economic growth, it is a negative for Canadian exporters. However, higher US taxes could increase Canada’s relative tax competitiveness which is currently weak.

Society and Immigration

The election shows America to be deeply ideologically divided. Roughly 47% of voters chose Trump, and in certain demographics and segments, the share rises above 50%. The election was not a repudiation of Trumpian politics or its worldviews. The last four years gave a voice to divisive, negative, fact-less rhetoric on many social issues including race, gender, immigration and climate change. There were also efforts to erode trust in public institutions, international institutions and the press – which can be damaging to the public’s understanding of the complex economic and social challenges. In his acceptance speech, President-elect Biden acknowledged the deep political and racial divisions and called for a ‘time to heal’. 

Biden is supportive towards immigration and has indicated that he would like to expand the number of high-skilled worker visas in the US. Kamala Harris, the Vice President herself is the daughter of Jamaican and Indian immigrants, and her position in the new Administration is an important signal of the Biden presidency’s more inclusive posture.

While much of the world became less friendly to immigration in recent years, the Government of Canada has strengthened its commitment to immigration, providing the nation with a competitive advantage in attracting talent. To the extent that America increases its openness to newcomers, Canada could face more US competition on the immigration front and might see more Canadians attracted to jobs south of the border.

Canada-US Border 

The Biden administration is likely to engage constructively with the Canadian government to determine the timing of re-opening the Canada-US border. However, that prospect is nowhere in sight given rising infection rates in both countries. An outstanding border issue is Government of Canada’s appeal of a Canadian Federal Court ruling that strikes down the law underpinning the Safe Third Country Act – the act that allows Canada to turn back non-US asylum-seekers at border crossings and require them to apply for protection in the U.S. instead.

Trade

President-elect Biden will bring greater stability to Canada-US trade relations. It is unlikely that he will impose tariffs on Canadian products under the guise of national security. However, US protectionism will remain an issue, such as the previously mentioned Buy America program or the timeless softwood lumber dispute. Remember that the Democratic Party will prioritize US firms’ interests in any consideration of trade policy, and Biden will need to be mindful of his party and their supporter’s priorities. It is also not clear to what extent the US will re-engage with the WTO and appoint trade arbitrators. Indeed, the US refusal to appoint WTO trade arbitrators started under President Obama.

The President-elect’s trade plans include bringing back critical supply chains, so America is not as dependent on other nations during a future crisis. He has also and promised to tighten domestic content rules, which may have implications for some US-oriented Canadian manufacturing sectors.

Biden is more likely to agree with Canada’s approach of making trade deals that do more than just facilitate the movement of goods, such as: workers’ rights, environmental regulation and protection, an a level playing field and clear rules for the retention intellectual property.

Climate and the Energy Sector

One of the Biden’s first executive orders will be to rejoin the Paris Accord commitment on the reduction of carbon emissions. In July, Biden released a $1.7 trillion “Clean Energy Revolution” plan that would invest heavily in green technology and aggressively pursue making the U.S. power sector emissions-free by 2035. He is also expected to encourage greater environmental regulation.

While this would align US and Canadian emission reduction and green investment goals, the President-elect has also vowed that he will scrap the Keystone XL pipeline- a project which would create jobs and investment in Canada’s struggling oil and gas industry. The Government of Canada has already indicated it will be raising the issue with the new Administration in an effort to change its position.

Foreign Policy

US relations with China may become less hostile and volatile, but America still has issues over the rise of China and its approach to trade. It is not clear whether President-elect Biden will change the US position on the detention of Huawei executive Meng Wanzhou, which led to the retaliatory detention of Canadians’ Michael Kovrig and Michael Spavor.

On foreign policy, the President-elect’s position is that America, “must repair our relationships with our allies and stand up to strongmen and thugs on the global stage to rally the world to meet these challenges.” He has emphasized in past speeches concern about China’s authoritarianism. Whereas the President-elect is likely to be less inclined to use tariffs that bring retaliation, he will likely raise issues of human rights abuses and the status of Hong Kong which would upset China.

President-elect Biden has a long political track record. He is known and generally respected internationally. He will likely mend fences with NATO members and other international institutions that traditionally frame Canada’s engagement globally. Biden is likely to bring back elements of multilateralism and work with allies to coordinate less confrontational discussions with China. 

While Biden should bring more stability to the international scene, it is likely that multilateralism and globalization will remain constrained by the rise of populism and nationalism that have we have observed in recent years – in the US but also in Europe and parts of Asia. As a major trading nation and a middle political power, these developments are challenging for Canada.



Categories: E-Sight, Economics

Tags: , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: