BDC: What the U.S. election means for Canadian entrepreneurs

BDC | Oct 15, 2020

US elections impact on Canadas economy - BDC:  What the U.S. election means for Canadian entrepreneurs

The U.S. presidential election on November 3 is dominating media attention. The candidates and their respective parties are proposing very different economic visions whose impact will go well beyond their country's borders.

The state of the race

Since winning the Democratic nomination, Joe Biden has led Donald Trump in national polls by an average margin of 7.3% (9.7% as of October 8). Biden also holds a substantial lead in a majority of swing states, but a bias in the polls in one direction or the other, as was the case in the 2016 election, remains a possibility. Taking this into consideration, poll aggregator FiveThirtyEight gave the Democratic candidate an 85% probability of victory as of October 9, compared to 15% for the President.

Canada vulnerable to a protectionist tide

Trade remains crucial for the Canadian economy. In 2019, exports accounted for 32% of Canada’s GDP. Each month, our country exports approximately $50 billion in merchandise, thus, stable trade ties are a priority for Canada. Trump's election in 2016 presented a risk for the abrogation of the North American Free Trade Agreement and led to the Canada-U.S.-Mexico Agreement in 2018. Despite signing that deal, the current administration is not shy about imposing tariffs on individual Canadian exports, as was the case for aluminum this summer. Despite the Trump administration's retreat in that case, this type of dispute remains likely if the President is re-elected.

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Taxes: Canada's relative competitiveness in decline

The U.S. election will also have an impact on taxation south of the border. Tax cuts enacted by the Trump administration in 2017 have reduced Canada's relative competitiveness on this front. The U.S. corporate tax rate has fallen from 35% to 21%. In 2018, corporate taxes in the U.S. were 1.1% of GDP compared to 3.7% in Canada.

What it means for Canadian entrepreneurs

  1. Although the Democratic candidate currently has a lead in the polls, the race remains competitive in several swing states. The race for control of the Senate also remains tight and could limit the implementation of the eventual president's policies in the event of a division of power.
  2. Canada would benefit in several ways from a Biden victory. There would be less trade uncertainty and our tax disadvantage would be reduced. Multilateralism would benefit, an important factor for an export-oriented economy like ours. Renewable energy companies would likely gain in the medium term from attractive opportunities south of the border.
  3. Canada's oil sector, which would face fewer obstacles under a Republican administration in Washington, would be a winner in the event of Trump's re-election. However, Canada would continue to face an often unpredictable administration and our relative competitiveness would remain weakened.

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