COVID has put tremendous pressures on Canada’s economy and on our public and private balance sheets. Long term economic recovery and job creation will be a key policy objective for Canadian leaders. Given that over 70% of our national trade is done with the United States (over 80% of Ontario exports go to the United State), what happens in the U.S. will have dramatic impacts on Canada’s economic recovery and prosperity. With the election of Joe Biden over and done and his inauguration completed, Tembo will outline what some of the new Administration’s economic and trade policies could be.
It now seems a done deal that Joe Biden will cancel the construction permit for the Keystone XL pipeline. The pipeline would have transported crude oil from Alberta to southern U.S. refineries. The project was supported by President Trump and is backed by a number of powerful Canadian political and business forces. News of the cancellation evoked strong responses from Premiers Kenney and Moe of Alberta and Saskatchewan. Keystone would have stimulated Alberta’s battered energy industry, and the pipeline would have contributed to some job creation. Premier Kenney views a cancellation as a move that would reduce North American energy independence and bilateral ties.
President Trump and his Administration did not shy away in using the powers of the U.S. Federal Government to unleash protectionist policies against sectors of the Canadian economy; including dairy, steel, aluminum, and lumber. The naive view is that these kinds of actions will cease altogether under a new and Democratic Administration. This is unlikely. Now U.S. Senate Majority Leader and New York Democrat Chuck Schumer wrote a letter demanding the Trump Administration impose sanctions against the Canadian dairy industry – likely to appease Democratic voters in key battleground agricultural states like Wisconsin, Michigan, and Iowa. Protectionism will not completely disappear under a Biden Administration.
Spending and the U.S. dollar
The Democrats have already unveiled a $1.9 trillion stimulus plan, with a $1,400 cheques to all Americans. This stimulus plan will place added pressure on the dollar, and will continue to force the Federal Reserve to continue its policies of ultra low interest and money printing. Higher rates on all of this debt would have serious repercussions to balance sheets. These forces of low rates and money printing will continue to weigh down on the Canadian dollar by forcing the Bank of Canada to keep its rates low. Although the Biden stimulus plan will likely have a difficult time of passing with ease, it represents just one portion of the multi trillions the U.S. has been spending to fight COVID and keep its economic system afloat.
The good news is that the new Administration is staffed by liberal internationalists, who are less likely to espouse nationalistic protectionism, and who are surely eager to position the U.S. as being warmer and friendlier to its Allies and partners. We will see how this new Administration wields the power it holds (as it controls the White House, the Senate, and the House of Representatives).