Trump looms large over federal budget
Political volatility in U.S. shapes Liberals’ agenda
OTTAWA • Uncertainty over the economic, fiscal and trade policies of the United States looms large in the Liberals’ second federal budget.
Although the Trump administration’s promises of energy deregulation, higher infrastructure spending and tax cuts are now bolstering the American economy, the political volatility south of the border has made it difficult to make predictions.
The Canadian government’s budget, tabled Wednesday, relies on projections of 3.4 per cent global growth in 2017, up from 3.1 per cent in 2016, an outlook it attributes to “robust” Chinese growth, improvements in Russia and Brazil, and a U.S. economy that is “expected to continue expanding at a relatively healthy pace.”
However, Congress is mulling a U.S. federal budget proposal that contains enormous changes to the bureaucracy, as well as a broad array of possible tax measures. Among those is the idea of a “border adjustment tax,” which experts believe would be disastrous for Canadian industries. A tax on goods sourced from outside U.S. borders would “heavily” impact U.S. firms’ decisions to buy Canadian, a C.D. Howe Institute report found in February, and could reduce Canada’s real Gross Domestic Product by almost a full percentage point.
The budget makes no mention of the North American Free Trade Agreement, which U.S. President Donald Trump may choose to renegotiate, nor of its third partner, Mexico. But a few other countries are named as priority markets for Canada: China, India and Japan. The budget commits to implementing legislation and $256 million in funding, over five years, to join the China-led Asian Infrastructure Investment Bank, which does not include the United States.
The Canadian budget document also goes out of its way to detail a “significant trade deficit in non-energy goods and services.”
U.S. Trade deficits have been an area about which Trump has expressed considerable concern. A thin section about foreign policy initiatives begins with almost a full page of platitudes on the Canada-U.S. relationship and its $2 billion in two-way trade. It also alludes to military co-operation, pointing out that Canadians and Americans have, on “countless occasions,” stood “shoulder to shoulder in defence of our shared values, both at home and around the world.”
In the coming months, Morneau said Wednesday, the government will announce the results of a defence policy review it launched early in its mandate, originally due at the end of 2016. With the review in the offing, the budget contained no new spending for the military despite that being an apparent path to winning Trump’s favour.
Trump’s statements during last year’s campaign and since his election in November have indicated the U.S. wants NATO countries to significantly increase defence spending. Canada would have to essentially double its defence budget to meet Trump’s desired target of two per cent GDP.
On border security, amid heightened tensions over asylum-seeking migrants, the budget cites joint initiatives that will “expedite the legitimate — and vital — flow of people, information and goods across our shared border” — though it offers no new funding for these.
One initiative highlighted in Finance Minister Bill Morneau’s budget speech Wednesday, and in the document itself, is the new joint council for the advancement of women entrepreneurs and business leaders launched on Prime Minister Justin Trudeau’s first visit with Trump in Washington, an initiative considered particularly important to Trump’s daughter Ivanka.
On climate change, Canada appears to be wishing for the status quo, saying “we will continue to build on” environmental co-operation.
Massive cuts are projected for the U.S. Environmental Protection Agency, however, and its new head recently expressed the opinion, rejected by the scientific community, that human-caused emissions aren’t responsible for the warming of the planet.
Concerns persist that the EPA’s Great Lakes cleanup programs are in danger under the Trump administration. The Liberals’ budget commits $70.5 million over five years to protect freshwater resources, including in the Great Lakes.