How to prosper, post-Trump

After the surprising election that will make Donald Trump president and keep Congress in Republican control, Canadian politicians will need to reboot their own policy thinking for the next several years. This is not, as Canadian Chicken Littles might think, the sky falling. A Trump presidency focused on growth and job creation could be a boon to Canada if we play our cards right.

It is clear that a Trump government will be reversing eight years of Obama’s socialistic policies. Expect several tax- and regulatory-reform initiatives to unshackle U.S. businesses currently weighed down by big-government measures that have raised taxes and regulatory costs.

Even though a Trump government might have little sympathy for Wall Street, it will nevertheless engage in reforms for corporate and personal taxes aimed at improving U.S. competitiveness by reducing tax rates and removing special preferences. Trump has gone on record with a promise to review job-killing regulations with the goal of eliminating any that offer little benefit. And it won’t be long before Obamacare is reformed; there is no other option. What replaces it must reduce health premiums on workers and remove the extra costs on businesses with full-time employees, which has only given employers incentive to keep people working part time.

What should worry U.S. trading partners like Canada is that Republicans, with the backing of many Democrats in Congress, will get tougher on trade in ways that increase protection for U.S. jobs. Trump says he wants to change the NAFTA agreement (of course, Obama promised the same in 2008), but his quarrel is with Mexico, not us. However, a Trump government will frown on Canadian protectionist policies such as supply management in dairy, eggs and poultry. It would also clearly be tempted to introduce Buy-American policies, which could hurt Canada even if we aren’t on Washington’s increasingly protectionist radar.

More immediate is the softwood lumber agreement, which is to be renegotiated this year. A Trump administration is likely to swoop in quickly with restrictions on B.C. lumber exports, which are effectively subsidized by laws that let Canadian mills buy B.C. logs at prices below the international market. Canada will have only itself to blame for maintaining those unfair policies. We would be better off if we had prioritized securing unfettered access to the U.S. market, rather than maintaining subsidies that distort the market.

The impacts on Canada of a Trump administration’s energy policies are going to be more complicated than we might think. Surely the Republican president and Congress will approve Keystone XL, which should provide significant income and tax benefits to Canada. However, a Trump government is just as sure to want to help American oil and gas production with tax breaks and lower regulation, which will give a big lift to U.S. shale producers. If Canadian governments continue with their pursuit of anti-competitive carbon polices and higher corporate tax rates that hurt industries exposed to U.S. trade, our producers will absolutely lose North American market share. Our federal and provincial anti-carbon policies began losing whatever lustre they might have had the night Trump was elected. The pressure to reverse them will only intensify as Trump winds down Obama’s fossil-fuel regulations.

Our recent raft of soak-the-rich policies will also look increasingly out of sync with the U.S. as Trump works to put tax reform at the top of his agenda. When the Reagan administration brought in reforms in 1986 that lowered personal and corporate rates in the U.S., Canada’s federal and provincial governments had no choice to respond to the competitive pressure with reforms of their own. We will see how U.S. policy evolves with a Republicans in control of both the House and Senate (where they still don’t have quite enough senators to be filibuster proof), but the chances for significant American tax reform now are the best we have seen in 30 years. Recent Canadian hikes in the top personal rate, creating a combined marginal top federalprovincial rate of 53 per cent — fourth highest in the OECD and well above that in the U.S. — will hurt our ability to attract talent even more if the U.S. shifts to lower personal tax rates in the next two years.

As for trade, Canada’s federal government is wisely pursuing agreements with Europe and other major trading partners to diversify our export options. With the Trump victory, however, we have a chance of reviving partnership agreements aimed at thinning the border (like Beyond the Border) that languished under an Obama administration that had little enthusiasm for them. Rather than recoiling at the fear of new American trade restrictions, and despairing at the almostcertain death by Congress of the Trans-Pacific Partnership agreement, Canada can be proactive in focusing on building a stronger trade relationship with our biggest trading partner. There is no reason to think President Trump would be against it.