Trumpland damning for our country, wallets
At 11 p.m. on election night, I switched over to watch Stephen Colbert’s live special on the U.S. Showtime network. I hoped to find a bit of levity within the gathering gloom.
I was disappointed. Colbert, normally never at a loss for words, seemed as nonplussed as everyone else at the unfolding events. Not even one of the country’s brightest satirists could find something funny to say.
At one point he asked a guest to compare the stunning results to historic U.S. elections. He replied in one word: “cataclysmic”. At that point, I switched back to CNN.
Few people ever really thought Donald Trump would win. But now he has, so we have to think about the future and how his presidency will affect our country and our wallets. The bottom line is: not well.
Let’s start with trade. Trump has repeatedly called the North American Free Trade Agreement (NAFTA) the worst trade deal ever negotiated. He has vowed to rip it up the first day he takes office. Of course, he can’t do that overnight. In fact, CNN Money reported prior to the election that the U.S. has not withdrawn from a trade deal since 1866.
But he can serve six month’s notice of America’s intention to withdraw from NAFTA, apparently without the consent of Congress (which, given the election result, would probably grant it anyway).
That would set in motion a frenzied period of negotiations in which Trump would undoubtedly demand major concessions that he could sell to his supporters. Canada and Mexico would be in a weak position to resist. The result could be an amended agreement that would be detrimental to both countries. About three-quarters of Canada’s trade is with the States, so any revised deal would likely have a negative effect on our economy.
Trump’s anti-trade posturing didn’t stop there. He vowed to pull the U.S. out of negotiations for the Trans-Pacific Partnership (TPP), which Canada supports and would open up a vast new trading zone for us. (Hillary Clinton took the same position as Trump on this one, although no one really believed her.)
Even more important than that stand on individual trade deals is his attitude. This man is an unapologetic America-firster and rode to power on that message. Expect him to be supportive of any U.S. initiative to protect its industries and its workers from foreign imports. Didn’t like the Buy America policies of the Obama administration? Get ready, you ain’t seen nothing yet!
The combination of Trump’s protectionist instincts plus his pledge to “keep America safe” will likely lead to a further thickening of the Canada-U.S. border. He hasn’t threatened to build a wall there, at least not yet. But the inevitable outcome of these two forces will be a higher degree of border screening of people and products, leading to longer wait times and a potential loss of export markets.
Another huge area of contention with the Trump administration will be environmental protection. We have a government in Ottawa that is giving it major priority. Based on his comments, it appears the presidentelect does not even believe that global warming is a problem, much less one that needs to be addressed by stringent environmental regulations.
In fact, he declared at one point that the whole concept of global warning was invented by the Chinese to make U.S. industry noncompetitive. The huge Environmental Protection Agency (EPA) may be on the chopping block after he takes office.
If it is retained, expect it to be in an emasculated form. One of Trump’s pledges was to restore the coal industry, which has been driven to the brink of extinction by environmental regulations that shut down coal-fired generating plants.
In one of the debates, he said the U.S. has a 1,000-year supply of coal (it does have a vast supply but not that much) and vowed to restore the industry to health. That won him a lot of votes in West Virginia and the key battleground state of Pennsylvania, which he narrowly won.
So what’s the bottom line for Canadian investors? Here’s how I see it.
Our currency will drop. The loonie was down almost a cent the morning after the election. Before the vote, JPMorgan Chase predicted it will fall as low as $0.70 (U.S.) if Trump won. If you’re planning to travel south this winter, convert your money now.
Gold will rise. The precious metal was on the rise before Election Day and took another big jump the day after results were released. Investors see it as the ultimate safe haven against the uncertainty of a Trump presidency.
The TSX will fall. It was a surprise to find the Toronto Stock Exchange in positive territory on Wednesday morning. I doubt that will last. There appears to be nothing positive for Canada in a Trump presidency, except perhaps a reversal of the decision to block the Keystone XL pipeline.
If you’re looking for U.S. stocks that may benefit from a Trump administration, consider a big coal company like Arch Coal. Its stock was up more than $5 the morning after the vote. Defence stocks should also do well. Lockheed Martin gained more than $12 the same morning.
Avoid environmental-related stocks and be cautious of companies that rely heavily on exports for profitability. If Mr. Trump does indeed launch trade wars with China and other countries, they’ll be in for a lot of trouble.
We’re embarking on a whole new era and one that, at the outset at least, promises to be unsettling for everyone. We have to be ready to adapt to the new realities of Trumpland. Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. His website is BuildingWealth.ca.
There appears to be nothing positive for Canada in a Trump presidency, except perhaps a reversal of the decision to block the Keystone XL pipeline