Trudeau’s Canada: A Bleak Economic Horizon

Below the 49th Parallel, the doctrine of “America First” has been made clear. It is a heavy statement. It means more than just prioritizing domestic products; it means a shift in economic regime. And above all, it means a shift that will be felt around the world — perhaps in no place more than Justin Trudeau’s Canada.

A once intimate President-PM relationship is now more precarious than ever. For Trudeau, a critic of the Harper administration’s interaction with Democrats, this signals an impending stress test of his diplomatic aptitude. With a meeting of the two executives slated for Monday, the uncertainty surrounding Trudeau’s approach to the new administration looms large. First impressions will be paramount to Canada’s future, especially with respect to Trudeau’s weak suit: the economy.

Within a year, Trudeau has flopped incessantly. Just look at his abandoned promise to balance the budget by 2019, which has now been revised to 2050. If the Liberal Party’s failures over the past year are any indication of its ability to attract and retain corporate investment in Canada, then the nation’s horizon is bleak.

Today’s circumstances paint a harsh reality: Canada’s current position will not rival that of its increasingly pro-business neighbour. With Trump in the Oval Office and Republican majorities in Congress, American companies are poised to enjoy massive gains from policy change. Trudeau’s economy may have adequately weathered U.S. competition when Obama was in charge, but it will not endure the incoming storm of commercial competitiveness.

Trump has pledged a reduction of America’s federal corporate tax rate from 35% to 15%, which would equalize it with Canada’s current rate. Factor in lower average U.S. state rates compared to Canadian provincial rates, and America looks much more attractive. In a clear juxtaposition, Trudeau’s reckless spending has encouraged massive tax increases, and although few have been directly on business, the probability of a sudden tax reduction for corporations is small.

Under Stephen Harper, Canada was a haven for companies seeking less aggressive taxation. In 2014, for instance, Burger King inverted to Canada via a Tim Horton’s merger, with the clear priority of tax reduction. Compare that with Trump’s plan to grant a one-time 10% repatriation tax redemption for firms bringing profits back to the U.S. It is a dramatic reversal of circumstance.

The elephant in the room is deregulation. Regardless of your opinion on potential externalities, Trump’s pledge to cut red tape for business owners will unquestionably encourage investment and bolster American energy independence. Meanwhile, Trudeau has slapped a regressive carbon tax on businesses and, by extension, consumers. In lieu of enacting policies to promote energy innovation, Trudeau has penalized commerce by raising the cost of doing business.

With repellent taxes and anti-investment policies like these, who would choose Canada for their next business venture? Probably very few. But there still exists a noteworthy — albeit questionable — silver lining.

To Canada’s benefit, it is likely that Canadian trade will strengthen as a result of U.S. growth. Concerns over trade barriers are relatively unfounded; after all, Mexico, not Canada, has been the target of President Trump’s anti-trade rhetoric. A large component of Trump’s plan to spur growth is infrastructure spending, and on that front, Canada maintains a clear competitive edge. As the United States’ second largest trading partner (after China, whose future trade relationship seems even more tenuous), industries like lumber and mining should see relative gains.

That said, this depends on whether Trudeau is diplomatically competent enough to circumvent Trump’s central doctrine of “America First.” The preservation of free trade should be easy, but if Trudeau is incapable of managing Trump’s ideological differences and idiosyncratic temperament, he could endanger even that advantage. Additionally, if the “made in America” stamp indeed becomes sacrosanct among an increasingly protectionist populace, the competitive edge of Canadian industry will falter.

Hopefully, Canada’s impending competitive threats will be tempered by concessions on some fronts — at least if Trudeau wants re-election in 2019. But concessions will not be without consequence for the Liberals. During last month’s cross-country town hall, for instance, Trudeau faced just as much heckling from outraged conservative Albertans as he did from betrayed liberal Manitobans. His 2015 voters may abandon him, quite literally, left and right.

Unless he can manage to at once defy his principles and please the Liberal base, Trudeau’s favourability is on track to deteriorate within the next three years.

 

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