Regardless of which side of the political fence you sit on, Donald J. Trump will be sworn in tomorrow morning as the 45th President of the United States of America. And the fact of the matter is that his inauguration will be a historical moment for all – even us Canadians, as many worry that Trump’s attitude could hurt our economy.
The concerns are legitimate. But we have to put them into perspective.
When it was announced back in November that Trump was the new U.S. President-Elect, many made their predictions on how his suggested policies (and bold opinions) would affect the economy on a global scale. But now that we’ve come to Inauguration Day, are we any closer in figuring out what is going to happen?
Effects on Canadian trade, business and jobs
Trump has stated he will take a more protectionist approach when managing the U.S. economy, with plans to lower corporate taxes and increase tariffs on foreign goods. Simply put, he wants to reward those who make products in the U.S. and punish those who go overseas. He even wants to scrap the North American Free Trade Agreement (NAFTA), but most experts say this is probably not possible.
NAFTA has been in place since 1994, and has allowed Canada to move many goods across the border without tariffs. Hypothetically, if NAFTA was scrapped, the agreement made prior to NAFTA would kick in again – the Canada–United States Free Trade Agreement (FTA). The FTA came into effect on January 1, 1989 but was superseded by NAFTA to include Mexico.
So if NAFTA was scrapped, the free flowing of goods would remain between Canada and the United States, but it would be harder to do business with Mexico once again. What is more concerning than NAFTA being cancelled is talks of a possible border tax that Canadian businesses would have to pay to export items to the U.S.
The National Post recently reported Paul Ryan, Republican Speaker of the House, and Kevin Brady, chair of the House Ways and Means Committee, are trying to convince Trump of a border tax, which he currently finds too complicated. But after the President-Elect is sworn in, it’s expected that these two powerful men will put more pressure on Trump to agree. This puts a lot of stress on Canadian businesses, who now fear jobs and growth will be lost once Trump is in power.
All of this could take business away from Canadian manufacturing and reduce the amount of American companies doing business in Canada, because it will ultimately be cheaper for them to stay at home. But in the long run, U.S. companies need international help to produce their goods. They can’t do it all alone, especially if they want to produce goods at a low cost.
On a possibly positive (economic) note, the formally dead idea of the Keystone XL pipeline may be back on the table. As the demand for oil increases, Canada could be in a better position to manage that demand with a direct pipeline built across the Canada-U.S. Border. This would be good news for Alberta, where job cuts in the last few years have been steep.
Without a doubt there’s increased concern about the future, especially among liberal Americans and Canadians, and the next few days will be interesting to say the least. Many are now anticipating how the markets will react once he is sworn in, but if you are a long-term investor with a 20-year horizon or more, the next few years should not have a huge impact on your money.
The important thing to note, though, is that just as we survived world crisis, like the cold war and threat of Y2K, we must keep calm and understand that we will get through this too.