Biden and Trump victories present implications for Canada's economy

RSM Canada ("RSM"), the leading global provider of audit, tax and consulting services focused on middle market businesses, today launched its third 2020 issue of “The Real Economy: Canada” – a quarterly report that provides Canadian businesses with economic analysis and insights into factors driving growth, or economic headwinds, in Canada's middle market. 

With the U.S. presidential election taking place in just a matter of weeks, and Canada looking to navigate a second wave of the COVID-19 pandemic, the latest Real Economy: Canada report shines a light on how the election outcome, combined with Canada’s reliance on the U.S. economy, might alter Canada’s  recovery and longer-term outlook. 

This report also looks at how Canadian industries have fared since the onset of the pandemic and explores measures the federal government and other authorities can take as the recovery process continues. 

Key findings in this quarter’s report include:

1. Recovery for both Canadian and U.S. economies are closely intertwined

• Growing dependence on the U.S. due to CUSMA and deteriorating relationship with China has hampered Canada’s ability to chart its own economic course.
• Data shows total trade between Canada-China has trended downward since the beginning of the U.S.-China Trade War in 2018. In comparison, total trade between Canada and the United States increased during this period.
• Current administration’s struggles to cap COVID-19 cases suggest a Trump re-election would present economic risks to Canada due to close economic ties. 

2. ‘America first’ policies likely to continue, regardless of election outcome

• Biden’s proposed ‘Made in America’ tax incentive, which offers tax credits for companies in the U.S. that expand employment and salaries domestically, could potentially discourage future Canadian market expansion.
• Trump’s protectionist tendencies would indicate Canada may see further headwinds with its largest trading partner if he’s re-elected.
• Biden’s willingness to adopt Trump’s tough stance on China if elected suggests Canada will likely continue to be negatively affected by U.S.-China trade relations.

3. U.S. election adds to the uncertainty of Canada’s oil & gas sector 

• Canadian oil pricing will be hit hard if Biden follows through on his campaign promise to cancel the Keystone XL pipeline, a critical venture for Western Canada oil producers that would provide direct access to the Gulf Coast refineries and world markets.

4. The consumer sector accounts for most of Canada’s growth during recovery process

• Consumer confidence’s summer comeback have influenced forecasts of a V-shaped GDP recovery in the coming quarters and sustained growth into 2022.
• However, the recent resurgence of new infections has dealt a blow to recovery and consumer expectations.

5. Labour market turnaround will be critical to continued economic progress, while turbulent times remain ahead for manufacturing sector 

• The service sector, which now employs nearly 80 per cent of the total labour force, lost 850,000 jobs since the start of the pandemic.
• Danger of lingering damage to labour force through loss of skills & productivity, and the ability of an idle labour force to keep up with the acceleration in technological changes.
• New manufacturing orders 11 per cent below their pre-crisis peak and roughly 5 per cent less than last year.

“Despite a rocky relationship between Canada and the current U.S. administration in recent years, it’s clear that a victory for either Trump or Biden would pose risks to Canada’s economy” says Alex Kotsopoulos, vice president, projects and economics with RSM Canada. “The issue is that Canada has become increasingly dependent on its neighbour south of the border, and when you combine this with the strong ‘America First’ policies of both presidential candidates, Canada will feel the brunt of those decisions. Therefore, it’ll be important for the Canadian government to proactively engage with the new administration to shore up trade and supply chains, which will be vital in the Canada's own recovery.”

Joe Brusuelas, chief economist with RSM US LLP, added: “When looking at Canada’s economic recovery data from the pandemic so far, it’s clear that the resurgence of Canada’s consumer sector has led the charge after a lengthy shutdown. However, to achieve stronger growth the labour force and industrial sector will be critical pieces of the puzzle, and while there is no meaningful or complete recovery until there is a vaccine, further expansion of the real economy by fiscal and monetary authorities will be important to keep recovery moving in the right direction.”