▪ It's Biden or bust for Canadian economy, some analysts say,
A Trump victory might lead to months of governmental gridlock, economists predict
As Canadians watch the U.S. election results come rolling in Tuesday night, economists and market strategists say they should be rooting for three things: a Joe Biden landslide, and Democratic control of the House and Senate.
The alternatives — a Donald Trump victory, or split control of the Senate and House of Representatives — would mean months of governmental gridlock, a smaller than expected COVID-19 relief package, and a floundering American economy that would drag down an already sluggish Canadian economic outlook.
“For a Biden victory to really be good news for Canada, there needs to be a blue wave,” said veteran economist and market strategist David Rosenberg, referring to a Democratic sweep.
A comprehensive COVID-19 relief package, which has thus far eluded congressional and White House negotiators, would be a shot in the arm for the American economy, and would spill over into Canada, Rosenberg said.
“If it’s a blue wave, come February we’ll see the mother of all stimulus packages.
“We’re looking at $3.5 trillion (U.S.) … and one of the most powerful co-efficients in Canadian economic performance is U.S. domestic demand,” said Rosenberg, who believes stock markets have already “two thirds” priced in a Biden victory.
Rosenberg also suggested that Biden’s plans to raise corporate tax rates would make doing business in Canada more attractive by comparison.
Economist Jim Stanford, director of the Centre for Future Work, said it’s Biden or bust for Canada.
“The only one of the scenarios which is a positive for Canada is a massive, unequivocal Biden win. The other scenarios would mean more uncertainty and, quite possibly, violence,” said Stanford.
Still, Stanford warned, even a Democratic blowout wouldn’t solve the intertwined structural problems with the American economy and society.
“Even a massive Biden win wouldn’t offset the deeper structural problems in the U.S.; the inequity, the exclusion, the ghettoization. Canadians should be aware of just how fractured American society has become,” said Stanford, adding that this would be a good time for Canada to try to diversify its economic dependence on the U.S.
Canadian manufacturers, and anyone supplying goods used in the construction industry, would benefit heavily from a stimulus-lifted American economy, said Douglas Porter, chief economist at BMO Financial Group.
“There’d be a lot of spending on infrastructure, so that would be good for our manufacturing sector,” said Porter.
That kind of stimulus, however, would be far more challenging for Biden to achieve if the Republicans manage to hang on to control of the U.S. Senate, Porter said.
“If they don’t sweep, a lot of Biden’s proposals are going nowhere,” Porter said.
If there’s one sector of the Canadian economy that’s likely rooting for a Trump victory, it’s the oilpatch, said CIBC chief economist Avery Shenfeld. That’s because Biden has said he won’t be giving the go-ahead for the long-proposed Keystone XL pipeline.
“I think in Alberta a lot of people are looking at a Trump victory making Keystone XL a lot more likely to happen,” said Shenfeld.
That project, which Barack Obama delayed repeatedly during his eight years in office, would help bring Alberta crude oil to other markets.
A Biden victory would all but assure Keystone XL is never built, said oil and gas analyst James L. Williams of WTRG Economics.
“If Biden wins, there won’t be a Keystone XL. He’s been pretty clear on that,” said Williams.
Williams believes oil traders have already priced in a Biden victory, which he suggests has kept the price of crude oil lower than it would otherwise be.
“In the short term, Biden’s shown he’s going to be more restrictive on COVID, and that will cut economic activity. In that case, the price of crude stays lower,” said Williams. “Internationally, he’d be more likely to revert to the old Iran deal, so you’d see the embargo on Iran lift. That would bring a million or two million barrels per day of production back online.”
Given that a Biden victory is already priced into crude oil trading at less than $36 (U.S.) per barrel, there’d be an upward swing if Trump wins, Williams argued.
“I think there would be much more of a boost in the price of crude if Trump wins,” Williams said.
If there’s one area where most economists believe the outcome of the election won’t make much material difference, it’s in international trade.
All those trade spats with China from Trump’s first term? The tit-for-tat tariff battle with Canada? They’re likely to continue no matter who’s in the White House, said BMO’s Porter.
“I suspect Canada would face as many issues on trade with Biden as we have with Trump, even if it’s with a friendlier face and is more predictable,” said Porter.