Trump, Taxes and Tariffs
- April 3, 2017
Canada must now grapple with the uncertainty of his presidential campaign promises. I say "uncertainty" because depending on whom you speak with, he will either be good for the Canadian economy or he will hinder growth.
Canadian proponents of Trump say if he truly can turn the US economy around–as some say he already appears to be doing with recent announcements by manufacturers to remain and to expand in the US–a stronger US economy will benefit the Canadian economy. Indeed, Matthew Barasch, a Canadian equity strategist with RBC Capital Markets, noted in a report in September 2016 that Trump's proposals to lower tax rates, increase US infrastructure spending and approve pipeline projects would have a "fairly meaningful" impact on Canada.
"Our view is that contrary to what some may believe, Mr. Trump's policies, if adopted (in part or in full), would not be negative for Canada and Canadian stocks."
Canadian opponents of Trump say his promises to reduce US corporate taxes, slap high tariffs on imports and renegotiate free trade agreements, could have a disastrous economic effect on our economy. Especially because about 75 per cent of Canadian exports are still destined for the US, despite Canadian government efforts to diversify with free trade agreements with other countries and regions around the world. One specific issue related to US protectionist measures is a border adjustment tax, highlighted in a January 11, 2017 Globe and Mail story in which writer Rachelle Younglai notes that "a border adjustment tax would penalize all exporters to the United States. But the impact on the country's closest trading partners, Canada and Mexico, would be the most severe."
She notes that a tax on Canadian exports to the US would make Canadian products more expensive and would force US businesses to look elsewhere for less expensive products, ultimately slowing trade between Canada and the US. The only possible upside is that the tax would cause the US dollar to rise and make US exports more expensive and Canada's goods cheaper to import.
The Government of Canada recognizes that it will have to have its best negotiating hats on in the coming months when it enters into potential trade discussions with the new US president and his administration. Indeed, Prime Minister Justin Trudeau's cabinet shuffle in January was, in part, a chance to reposition the government to do just that. And Trudeau's first meeting with Trump in February appeared to be a success with the two leaders reaffirming the strong bonds between Canada and the US.
Despite this, Canada will have to continue to stand its ground on future negotiations with the US and ensure that Trump's promise to "make America great again" will also help to bolster the Canadian economy. SMT