Increased dependence on U.S. means either outcome presents risks to Canadian economy
Whoever emerges victorious in the contentious U.S. presidential election, the Canadian economy will have to face risks and consequences arising from each candidate’s record and policy positions, according to a new analysis.
In its latest Real Economy: Canada report, RSM Canada highlighted a growing interdependence between the two North American countries due to the Canada-U.S.-Mexico Agreement (CUSMA). The Sino-Canadian relationship has also soured in recent years, as reflected by a downward trend in total trade between the two countries since the beginning of the U.S.-China trade war in 2018.
The current U.S. administration’s struggles to contain COVID-19 cases suggests that a Trump re-election would lead to an extended period of pandemic-driven pain, which the report said would present economic risks to Canada given the two countries’ close ties.
And while U.S. President Donald Trump’s America First policies could raise barriers for Canadian trade should he win a second term, a victory for Democratic nominee Joe Biden has downsides of its own, RSM Canada said.
Should he take a hard stance against China as Trump has done, Canada could continue to be hurt by negative fallout from negative U.S.-China trade relations. A “Made in America” tax incentive by Biden, under which U.S. companies could be granted tax credits for choosing to expand employment and salaries domestically, could also put a chill on potential Canadian market expansion.
A campaign promise Biden made to cancel the Keystone XL pipeline could also deal a punishing blow to Western Canada oil producers, whose hopes for direct access to Gulf Coast refineries and world markets have been pinned on the project.
“Despite a rocky relationship between Canada and the current U.S. administration in recent years, it's clear that a victory for either Trump or Biden would pose risks to Canada's economy,” said Alex Kotsopoulos, vice president, projects and economics with RSM Canada. “The issue is that Canada has become increasingly dependent on its neighbour south of the border, and when you combine this with the strong 'America First' policies of both presidential candidates, Canada will feel the brunt of those decisions.”
The report also examined how different Canadian industries have been affected by the pandemic. The summer revival in consumer confidence has led to forecasts of a V-shaped recovery developing in the coming quarters and sustained growth into 2022.
But recent studies of Canadian debt have pointed to a K-shaped recovery as certain business sectors and segments of the population have reaped unexpected benefits from a pandemic-driven digital shift and improved household finances stemming from lifestyle changes, among others. The recent surge of new infections has also dampened expectations for a recovery and sustained consumer optimism.
The labour force might also suffer from lasting damage, RSM said, as loss of skills and productivity and fast-paced technological change could leave idle workers with a lot of ground to recover once they return to their jobs.
“When looking at Canada's economic recovery data from the pandemic so far, it's clear that the resurgence of Canada's consumer sector has led the charge after a lengthy shutdown,” said Joe Brusuelas, chief economist with RSM US LLP. “However, to achieve stronger growth the labour force and industrial sector will be critical pieces of the puzzle.”
Brusuelas also emphasized that a meaningful or complete recovery would hinge on the development of a vaccine. To keep the recovery on track, fiscal and monetary authorities must also continue their role in further expanding the real economy, he added.
