What a Bi­den pres­i­dency would mean for the econ­omy – and the world

The Globe and Mail (Ontario Edition) - - FRONT PAGE - IAN McGUGAN MATT LUNDY

As the bat­tle for the U.S. pres­i­dency heads into its fi­nal days, Cana­di­ans have to brace for two rad­i­cally dif­fer­ent out­comes. A sec­ond term for Pres­i­dent Don­ald Trump would over­turn poll­sters’ ex­pec­ta­tions – again – and likely mean more of the high-drama, high-testos­terone con­fronta­tions the world has come to know so well over the past four years. In Canada’s case, that would nearly cer­tainly in­volve con­tin­u­ing trade bat­tles in ar­eas such as alu­minum and soft­wood lum­ber, as well as fre­quent late-night Twit­ter ha­rangues by Mr. Trump.

A vic­tory by Joe Bi­den, the run­away favourite in most re­cent polling, would turn down the vol­ume. The Demo­cratic can­di­date’s low-key per­son­al­ity and long his­tory of gen­teel con­sen­sus build­ing sug­gest he would re­move much of the heat from re­la­tions be­tween the United States and Canada.

But does that mean Cana­di­ans should cheer for a Bi­den pres­i­dency? Not so fast.

“It’s not the least bit clear to me that Bi­den – al­beit more pol­ished – would be a bet­ter friend to Canada” than Mr. Trump has been, writes Derek Holt, head of cap­i­tal mar­kets eco­nom­ics at Bank of Nova Sco­tia, in a re­cent re­port.

Among other is­sues, a Bi­den ad­min­is­tra­tion might rat­tle Alberta oil mar­kets and cre­ate new fric­tion on is­sues such as how to deal with China.

That, of course, is just the start of the dif­fer­ences be­tween the two can­di­dates. Mr. Trump is a big fan of tax cuts, fos­sil fu­els and rapid re­open­ing of the econ­omy even in the face of ris­ing COVID-19 in­fec­tions. In con­trast, Mr. Bi­den urges mod­est tax in­creases to help fund a mas­sive in­fra­struc­ture pro­gram as well as new em­pha­sis on so-called green ini­tia­tives to help re­duce car­bon emis­sions.

Right now, the big­gest sin­gle is­sue be­fore the two can­di­dates is how to deal with a weak­en­ing U.S. re­cov­ery. Pro­pos­als for a new round of stim­u­lus have stalled in Congress, caught be­tween a Democrat­con­trolled House of Rep­re­sen­ta­tives and a Repub­li­can-dom­i­nated Se­nate.

The dan­ger is that con­tin­ued clashes be­tween the win­ner of the pres­i­den­tial elec­tion on Nov. 3 and a di­vided Congress will stymie ef­forts to boost the U.S. re­cov­ery. “The most im­por­tant thing for Canada is how fast the U.S. econ­omy grows,” says Avery Shen­feld, chief econ­o­mist at CIBC Cap­i­tal Mar­kets. And that will hinge in large part on whether ei­ther party can forge a dom­i­nant po­si­tion in the com­ing elec­tion.

Who­ever wins the pres­i­dency will face a sober­ing eco­nomic re­al­ity. In the early months of the pan­demic, a mas­sive surge of gov­ern­ment sup­port cou­pled with ex­tra­or­di­nary mea­sures from the Fed­eral Re­serve helped the econ­omy bounce off its lows with sur­pris­ing speed. How­ever, the re­cov­ery is los­ing ve­loc­ity as the ini­tial stim­u­lus wanes.

Un­em­ploy­ment is far down from the 14.7 per cent it hit in April, but still nudges a painful 7.9 per cent. New fil­ings for un­em­ploy­ment in­sur­ance con­tinue to ex­ceed 800,000 a week. Mean­while, a wave of big com­pa­nies – in­clud­ing Walt Dis­ney, Gold­man Sachs, All­state, Raytheon Tech­nolo­gies and a host of air­lines – have an­nounced plans to chop even more jobs.

“Things are start­ing to slow,” says Joel Naroff of Naroff Eco­nomic Ad­vi­sors in Hol­land, Pa. “What kept things go­ing over the past few months was the U.S. be­com­ing es­sen­tially a so­cial wel­fare econ­omy, with gov­ern­ment sup­port­ing both com­pa­nies and house­holds through in­come trans­fers.”

With­out a big ad­di­tional jolt of fis­cal sup­port, growth will slip back, he says. “The U.S. econ­omy is not yet ca­pa­ble of stand­ing on its own with­out sig­nif­i­cant fed­eral as­sis­tance.”

The ques­tion du jour is how much as­sis­tance will be de­liv­ered and in what form. Pro­pos­als for ad­di­tional fis­cal stim­u­lus have been bogged down in Congress for weeks, with Democrats de­mand­ing a US$2.2-tril­lion pack­age while Repub­li­cans are will­ing to sup­port only about US$1.8tril­lion in new spend­ing.

If fresh stim­u­lus isn’t de­liv­ered be­fore the Novem­ber elec­tion, Mr. Naroff wor­ries that “we wake up in Jan­uary and Fe­bru­ary look­ing at flat to neg­a­tive growth” and an econ­omy on the verge of sink­ing back into re­ces­sion.

In a worst case, who­ever is in the pres­i­dent’s chair in Jan­uary will face a di­vided Congress that re­mains split along par­ti­san lines and un­will­ing to move on stim­u­lus.

A “blue wave” of Demo­cratic votes in Novem­ber might sweep this prob­lem away if it al­lowed Democrats to seize con­trol of the pres­i­dency and the Se­nate as well as the House. Polls have sig­nalled ris­ing chances of such a Demo­cratic clean sweep in re­cent weeks. Stock prices and Trea­sury bond yields have jumped in re­sponse.

The the­ory is that a com­plete Demo­cratic vic­tory would un­clog the ma­chin­ery of gov­ern­ment and un­leash a tor­rent of fis­cal stim­u­lus. “All else equal, a blue wave would likely prompt us to up­grade our [U.S. eco­nomic growth] fore­casts,” Jan Hatz­ius, chief econ­o­mist at in­vest­ment bank Gold­man Sachs, wrote ear­lier this month.

The prob­lem is that a blue wave is still far from a sure thing. “There is still a sub­stan­tial chance of more grid­lock ahead,” Mr. Naroff says. “If Trump were to sur­prise ev­ery­one and win the pres­i­dency again, but Democrats keep con­trol of the House, noth­ing gets done. If Bi­den wins, but the Repub­li­cans hold onto the Se­nate with a di­min­ished ma­jor­ity, he might get a cou­ple of things through, but not much.”

Even if the Democrats man­age a clean sweep, it may not guar­an­tee clear sail­ing for the re­cov­ery. The sin­gle big­gest un­known for the next few months is as much about sci­ence as pol­i­tics: Can the pan­demic be brought un­der con­trol over that time with­out shut­ting down the econ­omy again?

Un­der the Trump ad­min­is­tra­tion, the U.S. re­sponse to the virus has been un­usu­ally in­ept. The coun­try has suf­fered more than twice as many virus-re­lated deaths per capita as Canada, Ger­many or Switzer­land, ac­cord­ing to the Coro­n­avirus Re­search Cen­ter at Johns Hop­kins Univer­sity. Mean­while, new cases are once again on the up­swing in the U.S., as they are in many other coun­tries.

Mr. Bi­den’s ap­peal to vot­ers rests in large part on the be­lief he can do bet­ter than Mr. Trump in tam­ing the pan­demic.

A Pew Re­search Cen­ter poll in early Oc­to­ber found that vot­ers still give Mr. Trump a nar­row edge when it comes to choos­ing which can­di­date is best equipped to make good de­ci­sions about eco­nomic pol­icy. How­ever, by an over­whelm­ing mar­gin (57 per cent to 40 per cent), those same vot­ers said Mr. Bi­den is bet­ter equipped to han­dle the publicheal­th im­pact of the coro­n­avirus out­break.

That seems rea­son­able. “My hy­poth­e­sis would be that the Democrats might do a bet­ter job of lis­ten­ing to the sci­en­tists and there­fore con­tain­ing the virus,” CIBC’s Mr. Shen­feld says. How­ever, much de­pends on things out­side any pres­i­dent’s con­trol, such as how quickly an ef­fec­tive vac­cine can be de­liv­ered.

In com­par­i­son to the econ­omy and the pan­demic, Canada barely reg­is­ters as an is­sue in the U.S. elec­tion.

For Mr. Trump, Canada ap­pears to func­tion mainly as a con­ve­nient whip­ping boy. He pe­ri­od­i­cally blasts Canada for its trade be­hav­iour as he did in Au­gust, when he im­posed tar­iffs on Cana­dian alu­minum. “Canada was tak­ing ad­van­tage of us,” he com­plained at the time. But the U.S. quickly hit the pause but­ton on those penal­ties in Septem­ber, con­tin­u­ing a pat­tern of on-again, off-again trade ten­sion.

Mr. Bi­den also trum­pets his sup­port for Buy Amer­ica poli­cies and other mea­sures that would ad­vance U.S. trade in­ter­ests. How­ever, he isn’t one to take swipes at al­lies. In the Demo­cratic Party plat­form, Canada gar­ners just two men­tions in a 91page doc­u­ment – once in re­gard to its strong record on up­ward in­come mo­bil­ity, then in a pass­ing ref­er­ence to the new North Amer­i­can trade deal.

Still, the out­come of next month’s elec­tion could re­ver­ber­ate in Canada on sev­eral fronts, es­pe­cially if Mr. Bi­den wins.

For one, Mr. Bi­den has out­lined a hefty plan on cli­mate change. He has not only pledged to re­join the Paris Agree­ment, but has also vowed to get tough on other coun­tries.

The Bi­den plat­form says his ad­min­is­tra­tion would levy taxes or quo­tas on car­bon-in­ten­sive goods im­ported from coun­tries that are fail­ing to meet their cli­mate ob­jec­tives. Based on the lat­est pro­jec­tions, Canada will fall well short of its 2030 emis­sions tar­gets and might be vul­ner­a­ble to such U.S. sanc­tions.

“The di­rect ef­fects on Canada – if di­rectly tar­geted – and the in­di­rect ef­fects on world trade, growth and com­mod­ity prices could be dam­ag­ing,” said Mr. Holt of Sco­tia­bank.

An­other Cana­dian con­cern is the fate of Key­stone XL, the cross-bor­der pipe­line be­tween Alberta and Ne­braska. Mr. Bi­den is stri­dently op­posed to the project, telling CNBC in May he’s “been against Key­stone from the be­gin­ning.” For­mer U.S. pres­i­dent Barack Obama re­jected the pipe­line in 2015, only for Mr. Trump to green­light it later.

A sec­ond re­jec­tion would sting in Alberta. The province is in­vest­ing $1.5-bil­lion in the project, which would ease bot­tle­necks that have sup­pressed Alberta crude prices in re­cent years.

Mr. Bi­den’s po­si­tion “may just be elec­tion hype that could change, given that the horse has al­ready left the barn with parts of the [Key­stone sys­tem] al­ready op­er­a­tional,” Mr. Holt said. “Thwart its progress and more trains and trucks may be rum­bling through Canada’s and Amer­ica’s back­yards.”

A Bi­den pres­i­dency would al­most cer­tainly bring a U-turn in im­mi­gra­tion pol­icy. Un­der the cur­rent ad­min­is­tra­tion, the U.S. has sep­a­rated mi­grant fam­i­lies at the south­ern bor­der, en­acted a “travel ban” on largely Mus­lim-ma­jor­ity coun­tries and tight­ened ac­cess to the H-1B visa pro­gram for skilled for­eign work­ers.

Mr. Bi­den would re­scind the travel ban, sub­stan­tially in­crease the U.S.’s in­take of refugees and re­move the an­nual cap of 140,000 em­ploy­ment-based visas, among a litany of other pro­pos­als.

“A theme you can re­ally draw out from Bi­den’s prom­ises is a plan to re­vert to the pre-Trump, more Obama-like im­mi­gra­tion sys­tem, which is sig­nalling they want tal­ented work­ers from around the world,” said Robert Falconer, a re­search as­so­ci­ate at the Univer­sity of Cal­gary.

That would have an im­pact on Canada. As im­mi­gra­tion to the U.S. was tum­bling to mul­ti­decade lows, Canada’s in­take was on the up­swing, a key part of the fed­eral Lib­er­als’ eco­nomic strat­egy. In­ter­na­tional en­rol­ment at Cana­dian col­leges and univer­si­ties has surged over the past four years, while Ot­tawa un­veiled a fast-track sys­tem for high-skilled im­mi­gra­tion.

Un­der a Bi­den pres­i­dency, “Canada will have to com­pete a lit­tle bit more with the U.S. in terms of at­tract­ing im­mi­grants,” Mr. Falconer said. How­ever, Canada should still be able to hit its tar­gets, he added.

A more com­plex is­sue is the Democrats’ prom­ise to raise taxes on cor­po­ra­tions and high-in­come earn­ers. Canada saw its cor­po­rate-tax ad­van­tage wiped out in 2017, when Mr. Trump slashed the U.S. rate to 21 per cent from 35 per cent. Now Mr. Bi­den pro­poses boost­ing the statu­tory tax rate for busi­nesses back to 28 per cent.

“For Canada, it’s a dou­ble-edged sword: Rais­ing U.S. cor­po­rate taxes would ini­tially make cap­i­tal spend­ing in Canada more at­trac­tive on a rel­a­tive ba­sis,” said Mr. Shen­feld of CIBC. “But it raises the risk … that a Cana­dian gov­ern­ment might choose to [also raise taxes] down the road.”

The big­gest im­me­di­ate im­pact of a Bi­den vic­tory might be to re­move some of the ten­sions from U.S.-Canada trade is­sues. Un­der the Trump ad­min­is­tra­tion, tar­iffs on Cana­dian alu­minum, steel and other goods be­came a cud­gel Wash­ing­ton picked up when­ever it wanted to make a point.

“Ob­vi­ously, Pres­i­dent Trump has levied tar­iffs at var­i­ous times against Canada, of­ten quite un­pre­dictably,” said Les­lie Pre­ston, se­nior econ­o­mist at Toronto-Do­min­ion Bank. “I think you would see less of that un­der a Bi­den pres­i­dency.”

Chad Bown, a trade ex­pert and se­nior fel­low at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics in Wash­ing­ton, also ex­pects the tone of the Canada-U.S. re­la­tion­ship would im­prove un­der a Bi­den pres­i­dency.

“Mr. Trump is unique in that he likes to be com­bat­ive and he has found trade to be a use­ful com­mu­ni­ca­tions de­vice with his po­lit­i­cal base,” he says. “But that is rare for U.S. po­lit­i­cal lead­ers once they’re in of­fice. Trade is an in­cred­i­bly un­pop­u­lar po­lit­i­cal topic.”

Bot­tom line: Mr. Bown ex­pects trade is­sues to fade into the back­ground if Mr. Bi­den wins. Ten­sion over is­sues such as soft­wood lum­ber or the World Trade Or­ga­ni­za­tion won’t dis­ap­pear, he says, but Mr. Bi­den won’t be look­ing to pick un­nec­es­sary fights or rene­go­ti­ate trade deals while the re­cov­ery is stut­ter­ing and the pan­demic still rages.

The knot­ti­est trade is­sue in the early go­ing may be how to deal with China. Mr. Bi­den is just as skep­ti­cal as Mr. Trump about Bei­jing’s trade prac­tices, Mr. Bown points out. The dif­fer­ence is that Mr. Trump tried to con­front China alone, while Mr. Bi­den is more ea­ger to work with al­lies to present a united front.

A Bi­den ad­min­is­tra­tion may de­cide to join the suc­ces­sor to the Trans-Pa­cific Part­ner­ship Agree­ment – a pro­posed trade pact be­tween Pa­cific Rim coun­tries

other than China. Mr. Trump with­drew from the TPP in 2017. A Pres­i­dent Bi­den might also at­tempt to ne­go­ti­ate broader agree­ments with Euro­pean coun­tries, as well as push in­di­vid­ual al­lies to take a stronger stand.

“A le­git­i­mate ques­tion that is go­ing to be asked is what are al­lies will­ing to do,” Mr. Bown says. “What is Ot­tawa will­ing to do on trade with China that it has not done in the past? That could be an in­ter­est­ing dis­cus­sion.”

U.S. pres­i­dents don’t al­ways fol­low the course that their per­sonal his­tory would sug­gest. Richard Nixon’s de­ci­sion to go to China in 1972 is the clas­sic ex­am­ple of how a ca­reer politi­cian can sur­prise us all once in the Oval Of­fice.

Few peo­ple ex­pect Mr. Trump to change course if he wins re-elec­tion. “Most likely, we would just see a dou­bling down on the themes of his first term,” Mr. Naroff says.

Mr. Bi­den presents a more in­ter­est­ing case. If there is one big over­ar­ch­ing ques­tion about a Bi­den pres­i­dency it is about whether he would be as mid­dle-of-theroad as his record sug­gests or as rad­i­cal as many in his party would like.

“Go­ing on his­tory alone, Bi­den is a very tra­di­tional cen­trist Demo­crat,” says Christo­pher Sands, head of the Canada In­sti­tute at Wash­ing­ton’s Wil­son Cen­ter.

Dur­ing his 36 years as a U.S. sen­a­tor and eight years as Mr. Obama’s vice-pres­i­dent, Mr. Bi­den built a rep­u­ta­tion as a back­slap­ping ad­vo­cate for bi­par­ti­san con­sen­sus and in­ter­na­tional co-op­er­a­tion. He hop­scotched around the mid­dle on con­tentious is­sues, join­ing con­ser­va­tives in op­pos­ing manda­tory school bus­ing, while tak­ing more lib­eral po­si­tions on top­ics such as ban­ning as­sault weapons.

Many of his cur­rent pro­pos­als re­flect his pen­chant for com­pro­mise. He ad­vo­cates an in­crease on per­sonal in­come taxes, for ex­am­ple, but only for the tiny frac­tion of the pop­u­la­tion earn­ing more than US$400,000 a year. In a sim­i­lar vein, his vow to raise cor­po­rate taxes amounts to re­vers­ing only half of the Trump ad­min­is­tra­tion’s big cuts in that area, mean­ing U.S. cor­po­ra­tions would still pay a sub­stan­tially lower rate than they did be­fore 2017.

Such care­fully cal­i­brated moder­a­tion may con­tinue to de­fine Mr. Bi­den af­ter the elec­tion. How­ever, that is by no means a sure thing. The chal­lenge for a life­long cen­trist like him is that no­body is quite sure where the cen­tre is lo­cated any more.

Poli­cies that used to be con­sid­ered snooze-wor­thy – a com­mit­ment to moreor-less bal­anced bud­gets, in­cre­men­tal progress on race re­la­tions and mod­est mea­sures to halt global warm­ing – have sud­denly turned con­tro­ver­sial. Af­ter a sum­mer marked by eco­nomic im­plo­sion, Black Lives Mat­ter protests and rag­ing for­est fires, many of those mod­er­ate po­si­tions now look hope­lessly fee­ble.

If elected pres­i­dent, Mr. Bi­den would be lead­ing a po­lit­i­cal party in which pro­gres­sive fire­brands such as Bernie San­ders, El­iz­a­beth War­ren and Alexan­dria Oca­sio-Cortez are push­ing for rad­i­cal change on ev­ery­thing from ban­ning frack­ing to ex­pand­ing health care to crack­ing down on the mo­nop­oly power of gi­ant tech com­pa­nies. The pro­gres­sives blame Hil­lary Clin­ton’s de­feat in 2016 on her overly timid ap­proach. This time around, they want stronger ac­tion.

“If Joe wins as a mod­er­ate, will he gov­ern as a mod­er­ate?” Mr. Sands of the Canada In­sti­tute asks. “Or will the ex­pec­ta­tions that have been build­ing up over the past four years within the Demo­cratic party push him fur­ther left than main­stream vot­ers may be com­fort­able with?” Mr. Bi­den’s hum­drum de­meanour could hide some sur­prises ahead.




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