American Revolution 2.0 and What it Means for Canada

By Angus Gillespie

In the aftermath of what can principally be chronicled as the most surreal U.S. presidential campaign in history, a genuine case could easily be made that America has not experienced such a gargantuan transformative political and cultural upheaval since the formation of the country via the acrimoniously violent American Revolution. That unifying historical era was given life by colonists who rejected the British monarchy and aristocracy and overthrew the authority of Great Britain resulting in the eventual declaration of free and independent states in July 1776.

Fast-forward 240 years and it would not be an overstatement to surmise that Donald Trump’s unexpected victory represents the second full-fledged American Revolution in every imaginable way. For better or worse, the cold hard fact is that the election of Trump was a colossal rejection of the U.S. establishment. At no point in its history has the world’s most powerful economy been so divided, in spite of certain politicians and pundits who refused to address the elephant in the room right up until the bitter end – and we do mean bitter. The refusal to acknowledge the serious problems and frustrations facing Americans was what forced this massive overthrow.

Rather than admit it was time to consider change and listen to everyday people, a major misstep by Hillary Clinton was to continually advocate for more of the same-old, same-old, assuming the American electorate would take the safe route over that of the great unknown. Little did Clinton or her advisors ever imagine that the traditional handbook would fail so miserably. The tired, repetitive promises were met by percolating anger and frustration that was expanding with each passing day, and as a result the ultimate November pushback was enormous. In fact, even those within Trump’s inner circle quietly admitted they felt he had little to no chance of actually pulling off a victory in the final weeks and days prior to voting day.

Impact on Canada

Matthew Barasch, a Canadian equity strategist with RBC Capital Markets, wrote a detailed report about Trump’s proposals on lower tax rates, infrastructure spending and oil that would all serve to promote U.S. economic growth, which could in turn have a positive impact on the Canadian economy.

“Our view is that contrary to what some may believe, Mr. Trump’s policies, if adopted (in part or in full), would not be negative for Canada and Canadian stocks,” Barasch wrote in the report.

Despite warnings of dire immediate stock market consequences with a Trump victory, Wall Street has instead posted record gains on its main indices.

Trump’s election as the 45th President of the United States will have a profound international effect, and perhaps no more so than here in Canada. But will it be profoundly better or worse – or will we not really notice much of a difference at all? It seems there is no in-between when eliciting opinions, and yet somewhere down the middle is quite likely where we’ll find ourselves when the dust and hyperbole settles.

After securing the Republican nomination in July, Trump said the following as part of his acceptance speech. “I am going to bring our jobs back to Ohio and Pennsylvania and New York and Michigan and all of America and I am not going to let companies move to other countries, firing their employees along the way, without consequences.”

Carrier was one such company that had planned on closing its operations in Indiana in favour of a plant in Mexico. It has since had a change of heart after several meetings with Trump, saving nearly 1,000 American jobs. At the start of this month, Ford Motor Co. announced it was cancelling plans for a new $1.6 billion plant in Mexico. Ford CEO Mark Fields said the decision to cancel the new Mexico factory was the result of sagging demand for small cars in North America and not because Trump was elected president. However, Trump has been extremely vocal about his displeasure regarding the investment. Furthermore, at the end of December, Trump announced that wireless telecom giant Sprint would be bringing 5,000 jobs back to U.S. while a new company called OneWeb will be hiring 3,000 people.

Throughout his whirlwind campaign that lasted more than 18 months, the real estate mogul and former reality TV star consistently stated he planned to kill the Trans-Pacific Partnership, an agreement between 12 countries (including the U.S. and Canada) that accounts for about 40% of the entire global economic base. In its current form Trump believes such a deal would only speed up the demise of American manufacturing.

Although extricating the U.S. from the current NAFTA agreement would likely take anywhere up to a year to achieve – and perhaps longer in the onerous courts system – Trump has also made it clear that in the absence of a quick and clean exit he’ll swiftly be able to slap punitive tariffs on companies looking to sell their products in the U.S. It’s no secret he’s specifically targeted Chinese and Mexican companies as the main source of his disdain. However, a renegotiated NAFTA would almost assuredly spell bad news for the auto industry in this country, given that each of the major manufacturers are either American or internationally owned. A reason for optimism is that Trump has been quite reserved in his criticism of direct Canada-U.S. trade relations. But whether Canada is hurt by collateral or intentional actions are irrelevant – each will still cause damage as has been witnessed out in Alberta with the oil industry. The fight has always been between the United States and OPEC, but Canada has been caught in the crossfire and has paid dearly for it.

Protectionist talk is a common precedent set by U.S. presidents, but it’s often to quell domestic concerns that jobs will be moved to countries with cheaper labour. The bite is never as bad as the bark – and it’s unlikely to be much different in a Trump administration with a series of checks and balances in place that makes wholesale movements much more difficult than simply uttering threats to do so. One need only review the number of times has Trump threatened to sue a company or an individual vs. the times he’s actually followed through on those threats and it’s evident the number is actually quite miniscule.

A View from the North

Douglas George is the Consul General of Canada based out of Detroit, and is primarily responsible for negotiating with the states of Michigan, Ohio, Kentucky and Indiana. He is a career diplomat with over 30 years of experience, and most recently served as Canada’s Ambassador to Kuwait.

Recognized as a trade policy expert, George has worked in numerous economic posts at Global Affairs Canada and is uniquely qualified to provide insight as to how Canada’s trade with the United States will be impacted under a Trump administration, that has been touting firmer American protectionism standards regarding international trade.

While speaking at the Canadian Council for Public-Private Partnerships conference in Toronto, George said that the Canadian government will work with businesses to keep the lines of trade open. The concern is that the anti-trade sentiment, which was so pervasive throughout the entire election campaign, will not wane beyond Trump’s January 20th inauguration.

“The prime minister signalled our openness to working together in his congratulatory message to President-elect Trump and a follow-up phone call the next day,” says George. “Canada has extended an invitation to Mr. Trump for an early visit.”

“We’re not saying there will not be differences and there are clearly areas where hard discussions lie ahead,” continues George. “Over the next months and years we will see how these views are translated into concrete policies shaped as they are by politics in Washington and events in a wider international environment.”

While the federal government has adopted a conciliatory tone with Trump as he makes his way to the White House, Ontario has been far more outspoken about its trade concerns with Premier Kathleen Wynne warning that Trump’s threats to discard trade deals and renegotiate the terms could have dire consequences for the province, which relies on the United States for 80% of its trade.

Much like the prime minister, Canada’s Ambassador to the U.S. echoed similar comments about the pending relationship moving forward. “It’s an interesting and fascinating time to be in Washington,” says David MacNaughton. “Regardless of who was elected as president, it has always been Canada’s assertion to work with that individual and their administration.”

As a side-note, MacNaughton briefly met Trump in mid-December when both were attending the annual U.S. Army-Navy game in Baltimore.

“On a broader scale we have a relationship that rests on a deep foundation of shared interests and values. The Ambassador (MacNaughton) does not see the fundamentals of our relationship changing and it will afford us many areas for working together on shared interests,” continues George, who went on to say the Canadian government looks forward to working with industry, the new administration, members of the U.S. Congress, governors and all of those who help support this Canada-U.S. relationship, which is the largest and most prosperous in the world.

Interconnected Trade

The magnitude of an interconnected North America cannot be overstated. More than $880 billion a year in goods and services crosses between the Canada-U.S. borders, which amounts to about $2.4 billion a day.

Canada exports twice as much of its products to Michigan as it does to China. In turn, Canada is the United States’ biggest customer and in fact we buy more goods than China, Japan and the United Kingdom combined. The two countries not only buy and sell products to one another but there is an established relationship in developing technologies as a tandem that are sold around the world.

“Our supply chains, workers and systems are bound together by a closer-related economic relationship including an integrated infrastructure of highways and railways across thousands of miles of shared border,” notes George. “About 400,000 people use this cross-border infrastructure every single day.”

Canada and the U.S. need to continue the process of cross-border collaboration and make the relationship stronger while ensuring a more secure environment for citizens in both countries. Canadian and American military personnel often work side-by-side on land, sea and air in places such as the Middle East, which is something George witnessed first-hand during his time as Ambassador in Kuwait.

“We also need to continue to collaborate in the all-important auto industry because working together will make us stronger than doing it alone. I challenge everyone to come up with ways that we can better collaborate to further the cooperation between our two countries,” emphasizes George.

Supporting the Canada-U.S. extensive bilateral relationship is an efficient cross-border network but George says the two sides must continue to build and modernize it in order to maintain our unrivalled North American competitiveness.

The Gordie Howe International Bridge project between Windsor and Detroit will unclog the busiest entry route into the United States, which long ago outgrew the maximum capacity of the Ambassador Bridge and the Detroit-Windsor tunnel.

“This project addresses four regional transportation needs at the busiest trade corridor between Canada and the United States. We have to make it more efficient and effective. This new crossing provides better highway to highway connections and will allow capacity for continued growth as well as being faster and safer, thus enhancing trade and tourism,” remarks George.

Just recently the Windsor-Detroit Bridge Authority announced moving ahead on a major milestone in taking request for proposals on the construction of the span.

President-elect Trump has articulated a commitment to invest in U.S. infrastructure for improved transportation, water, security, telecommunications and electricity systems. Current budget demands fall well short of the predicted need. For that reason U.S. government officials are increasingly turning to new and innovative methods to address this infrastructure issue. Trump’s promise to build more roads, bridges and other infrastructure is seen as an opportunity for Canadian companies to be part of that overall development plan. Trump says he sees the need for private-sector financing and involvement to fund infrastructure, so the development of P3 projects seems a certainty.

“We will continue to work with you and your stakeholders and customers to make a case to Congress and the administration that Buy American harms the North American economy, harms our integrated supply chains and hurts the competitiveness … of companies on both sides of the border,” says George.

George sounded a note of optimism, noting that Trump’s election will not destroy the bond between Canada and its largest trading partner.

Trump has repeatedly promised to reshape the NAFTA free-trade agreement, which he calls “the worst deal in history” (for the U.S.). Prime Minister Trudeau has vowed to work “very closely” with Trump and said Canada has no closer ally and partner than the United States. But Trudeau’s openness to trade, refugees and the environment stands in stark contrast to Trump to name just a few, at least verbally. It remains to be seen just what the U.S. will do under the new administration.

MacNaughton said if NAFTA was scrapped, the original Canada-U.S. trade agreement that predated NAFTA would come back into force and he said he doubted the Americans would want to end that.

A significant boost for Canada’s energy industry would be the approval of TransCanada’s Keystone XL pipeline from Alberta to the U.S. Gulf Coast. President Barack Obama put the kibosh on it but Trump supports the pipeline on the proviso the U.S. gets a fair share of the profits. Saskatchewan Premier Brad Wall hopes Trump will maintain his stand on the issue. Trump’s long-term plan is to add 25 million jobs, spurred by tax cuts and infrastructure spending. It’s believed the overflow from that alone could greatly benefit Canada’s economic fortunes.

“With Republican majorities in both the House and Senate, I am hopeful that this important project (Keystone) will move ahead quickly. On the other hand, I hope he reconsiders his plan to end the North American Free Trade Agreement,” says Premier Wall, who has often been touted as a possible prime ministerial candidate in the future for his widespread knowledge on a business industry.

“We need your help in mobilizing your network of U.S. purchasers and suppliers to alert member of Congress and state legislators about the local harmful impact of any trade restrictions,” says George.

The answer as to whether a Donald Trump administration will be good or bad for Canada is not a simple one and quite likely depends on the business sector in question. Billions in infrastructure means construction, housing, healthcare, energy and financial industries are optimistic about the future. Those negatively impacted could include: real estate investment trusts (REITs), telecommunications, utility services, green initiative enterprises and certain types of innovative technological organizations. Progress in the fight against climate change will be dramatically rolled back if Trump sticks to his word. He wants the U.S. to be removed from the 2015 Paris agreement, a landmark international climate treaty aimed at curbing emissions and limiting the rise in global temperatures.

History will ultimately determine whether America made a wise decision in rejecting the traditional methodologies by meandering down a path of the unknown with a businessman whose career achievements can be termed as being anywhere from astoundingly successful to horribly inadequate, depending on who you ask.

There won’t be any physical walls going up between Canada and the U.S., but it remains to be seen whether there will be bureaucratic blockades in the form of tariffs and even stiffer border security mandates and protectionist measures. It’s an entrance into uncharted waters and we’re all going to see what’s in store for the U.S., Canada and the rest of the world. Some analysts opine things will get much worse. Others say it will get better. The truth is nobody knows for sure. The sun will continue to rise in the morning and set in the evening. Everything else we’ll just have to watch as it unfolds.

Canada’s five-largest export destinations in dollars for 2015 according to Statistics Canada.

Country Percentage

United States 75.6
China 4.1
United Kingdom 3.2
Japan 1.9
Mexico 1.5
All others 13.7

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borkowski_bubbleCBJ January 2017