5 Ways Donald Trump’s Presidency Would Impact Canadian Business
Disclaimer: This article does not endorse either political party or presidential nominee.
The American presidential election is tomorrow, and Canadians are anxious to see who wins. While Hillary Clinton has led in the majority of polls until now, slim margins could make for a close race. Either candidate could win, and we must be must be prepared for each scenario.
However, there is a pervasive opinion that if Trump were to become President of the United States, the Canadian economy and business landscape would experience immediate impacts. While there are some policies that would hurt Canadian business conditions, other platform promises Trump made would strengthen our domestic industries. While we take no position on who should win, it’s important to understand how these policies could impact Canadians.
From a business and economic standpoint, Canadians need not become too worried if Trump is elected. Why? As history has shown time and time again, when the American economy surges, Canada’s economy gets a boost too. This is not to say Clinton wouldn’t also be good for Canadian businesses, but it’s unreasonable to fear a total economic collapse should Trump begin implementing changes.
How Donald Trump’s Policies Would Transform the Canadian Economy
A recent RBC Capital Markets report suggests that if Donald Trump wins the American presidential election, a shift would occur providing both positive and negative implications to Canadian businesses. Some of these include:
Tax Rate Competitiveness
If elected, Donald Trump has promised to lower personal and corporate tax rates across the board. Some of the key aspects of this plan:
- Reduce the number of income tax brackets from 7 to 3;
- Reduce the highest marginal income tax rate from 39.6% to 33%;
- Reduce corporate tax rates from 35% to 15%; and
- Levy a repatriation tax of 10% for corporate profits being held offshore.
When compared to rates here in Canada, these changes could make American business expansion and labour more attractive for companies. American firms would pay under half of their current taxable rate, greatly improving profits, and encouraging greater investments.
Lower income tax also means that economic immigrants – those relocating to find skilled labour – could flock to the United States looking for employment. While the United States already has a slight advantage over Canadian income tax rates, this change would make it tough for Canadian firms to compete for labour.
On average, Canadians within the top tax bracket will pay 51% of their income between federal and provincial taxes. Should Trump be elected, his tax reform would mean Americans within the top tax bracket would pay only 38% between federal and state taxes.
Benefits to Canadian Businesses: Drives the American economy, which increases Canadian exports. Repatriation of overseas profits will return liquid cash investments that will be used to expand businesses on both sides of the border.
Drawbacks to Canadian Businesses: More difficult to compete for and retain skilled labourers, and could move large-scale business investments made in States.
Infrastructure spending is a hot topic for both presidential nominees. Both candidates have discussed how a lack of investment has negatively impacted the United States infrastructure. Each will contribute federal funds to improve roads, power generation, and water projects, however Trump has confidently stated that he will outspend Clinton in this area.
Canadian infrastructure investments may be a contentious issue, but one cannot deny the positive impact they have on business. With better roads and transportation, businesses can quickly and reliably ship their products, leading to higher profitability.
76% of Canadian exports are sent to the United States, and one of the most common ways to get product to the country is via one of the many border crossings. Improving borders and infrastructure throughout the US will help Canadian businesses to export more and drive greater profits.
Benefits to Canadian Businesses: Sufficient, reliable infrastructure that will provide eased market access.
Drawbacks to Canadian Businesses: Short-term construction projects that could delay transportation and other business activities.
International Trade Relationships
Trump plans to shake up a number of trade agreements, if elected as the President of the United States. The Republican candidate has discussed intentions to renegotiate the North American Free Trade Agreement (NAFTA) while flat-out rejecting the Trans-Pacific Partnership (TPP). Furthermore, Trump could effectively call a trade-war on China by implementing a 35% tariff on Chinese imports.
While Trump publically said that he loves Canada, reworking NAFTA would create trade issues. Since becoming law in 1994, NAFTA has strengthened the economic ties between Canada, the United States, and Mexico. Now over 20 years later, businesses rely on value chains made through NAFTA to continue profitable operations.
Tariff implementation could have serious negative impacts on the United States. Trump’s plan would involve laying a 35% tariff to level the playing field against unfair competition and an undervalued Chinese yuan. Really all this means is that Americans will pay an additional 35% for Chinese-imported goods.
Benefits to Canadian Businesses: Some Canadian manufacturing sectors could benefit from a Chinese export tariff, since a 35% increase in price could enhance Canada’s ability to compete with labour/material inputs.
Drawbacks to Canadian Businesses: Could disrupt value chains and existing partnerships involving businesses included in NAFTA.
Renewable and Traditional Energy Investments
‘The Donald’ has declared numerous times that if he became president, he would encourage investment into traditional energy infrastructure. Oil, coal, and natural gas will all receive focus at the expense of developing renewable energy technologies. Trump believes that America should be able to drill anywhere, for anything, so the US could remain dominant in the energy sector.
This traditional energy perspective gives renewed opportunity for Canadian energy projects that couldn’t pass in recent years under Barack Obama. The Keystone XL pipeline project and other similar pipeline discussions could resurface under new leadership. That’s not to say, however, that Canada’s Liberal government would be interested.
Benefits to Canadian Businesses: Increased U.S. market access via pipelines and higher prices due to greater demand.
Drawbacks to Canadian Businesses: Could mean Canadian businesses lose focus on clean technology development; are unable to respond to global market demand for renewables.
Immigration and Skilled Labour Migration
One of the brightest opportunities for Canadian businesses, should Trump be elected, is increased access to foreign skilled workers. Trump’s presidential campaign has revealed that if he stepped into office, he would deport millions of illegal immigrants and build a wall on the Mexican/US border to prevent new illegal immigrants from entering the country.
In Canada, our government is accommodating to immigrants and tries to strengthen the immigration process. Because of this, approximately 20% of Canada’s population is foreign-born and half of those immigrants are considered ‘highly educated’ according to the international Organisation for Economic Co-operation and Development (OECD).
The difference between Canada and the United States’ immigration policies will widen even further should Trump become president, which should come as a benefit to Canada.
Benefits to Canadian Businesses: Access to skilled immigrant workers who have been displaced through deportation, or are no longer interested in the United States because of a hostile environment towards foreign workers.
Drawbacks to Canadian Businesses: May have to train or upskill immigrant employees to ensure they have the same skills as current employees.
Government Priorities Shift When New Parties are Elected
Donald Trump’s ambitious plans to restructure business and government in America would undo legislation passed by the Obama administration. Rejecting the TPP is just one instance of this happening. It does, however, show how the values of an entire country can seemingly change when a new government is elected.
This was true of the last Canadian election when an extremely progressive Liberal platform beat the Conservatives. Almost instantly the government change lent greater support for Indigenous communities, renewable energy, and youth. Some campaign promises were met with changes to the legislature while new economic strategies were supported through Canadian government grants.
Small Business Grants Supporting the Liberal Platform
A Youth Jobs Strategy and Low-Carbon Economy were two major platform themes present during Trudeau’s federal leadership race; each were met with new/improved small business funding programs. This includes:
- Canada Summer Jobs: This popular federal hiring grant was expanded to double the amount of funding awarded to Canadian businesses each year. Until 2018, $113M will be given annually to employers hiring a student for the summer. For-profit businesses can receive up to 50% of a student’s wages for a period of 6-16 weeks. Companies may receive up to $300,000 in these Canadian government grants each year. Canada Summer Jobs is not currently open to applications, but usually becomes available in January every year.
- CME SMART Green Fund: Ontario answered the federal government’s call for a reduction in greenhouse gas emissions. This new program is available to manufacturers who are implementing new energy-efficient machinery and reducing their demand on electricity. Energy-efficient productivity enhancements may receive up to 50% of eligible expenses to a maximum $200,000 per facility.
If you would like to discuss your business’ eligibility for either program, please contact Mentor Works.
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