Bracing for U.S. election’s impact
Uncertainty dominates
From where Canada sits, the view of our neighbour’s economic landscape is looking a lot less inviting than it used to.
No matter who gets the keys to the White House after the Nov. 8 election, there is bound to be loud disagreements between U.S. political parties and disturbing shifts in crossborder relationships.
“I see two things that Canada should worry about,” said economist Dana Peterson, one of the authors of a recent report from New York-based Citi Research. “The first is the generalized level of uncertainty in the U.S., which would affect U.S. growth and, subsequently, Canadian exports. And the second is the prospect for trade wars, which would have obvious implications for global growth, Canada included.”
A win by Democratic candidate Hillary Clinton would “most likely mean continued middling U.S. growth, or a slight lift,” according to the report from Citi Research, which is part of Citigroup Global Markets. If Donald Trump — the surprise Republican torchbearer — is elected president, the country “risks slower growth or recession” from restricted trade and “curtailed” fiscal expansion plans. Either way, “uncertainty alone could hit the economy,” Citi cautioned in a major report released this week. “Global growth will also be impacted if uncertainty rises, U.S. growth is hit and U.S. financial conditions tighten.”
At the moment, Citi estimates Clinton has about a 65 per cent chance of becoming president, compared to 35 per cent for Trump. But if the June 23 vote in favour of Britain leaving the European Union has taught us anything, it’s that nothing is for certain.
In fact, a number of other U.S. polls indicate a much slimmer six-to-10-point lead for Clinton.
“This uncertainty over the polls takes on greater significance in an election where the policy distance between the two candidates is arguably the widest in decades, with numerous non-mainstream — if, ultimately, un-implementable — proposals,” Citi notes in its report. “The political, security, economic and market stakes are high.”
The Canadian economy would not be spared if Trump does win the top job in the United States — this country’s largest trading partner and a member of the 1994 North American Free Trade Agreement, which includes Mexico.
Trump wants NAFTA scrapped, while Clinton — who had her doubts about NAFTA at the time of its signing — would likely now settle for renegotiating some parts of the deal.
But both candidates are opposed to the recently signed 12-nation Trans-Pacific Partnership, Trump more vocally than Clinton, so it could be in trouble no matter who wins the election. There are strong differences between economies here and in the U.S., but both countries are operating in a low-growth economy and a low-investment climate. We’ re in an in definite holding pattern on interest rates, thanks largely to the global collapse in oil prices, with the chance the Bank of Canada’s next move could be down. The Federal Reserve, meanwhile, will likely stay on course to raise borrowing costs by year-end. Still, “if Mexico and Canada start to fear being booted out of NAFTA, if we have trade wars ... if we see this type of upheaval, the Fed would probably decline to do anything,” Peterson said.
Another problem is that “Trump just revamps his campaign ... at least once a week.” If Clinton wins the election, “the level of uncertainty would probably be very low.”