January 4, 2017 by Speakers' Spotlight
Canada’s Openness Can Be an Advantage in the Age of Trump
As the Senior Fellow for the Conference Board of Canada, Glen Hodgson brings nearly 35 years of experience in areas such as macro-economics, international trade and finance, and fiscal and tax policy. Supporting the Conference Board’s mandate to advance Canadian competitiveness and prosperity, he identifies and develops new initiatives for research and engagement, undertakes research, and provides public commentary on topics such as Canada and globalization, low-carbon economic growth, sustainable fiscal policy, tax system design and administration, and the creative economy. Here, Glen suggests strategies for Canada to thrive once President-elect Donald Trump takes office:
President-elect Donald Trump’s likely isolationist approach to economic policy offers Canada an opportunity to capitalize by attracting top international talent, capital and ideas. Should the Trump administration close its doors to people and trade, Canada could take actions to counteract this by being open to the world.
Key parts of the Trump administration’s economic policy agenda include: punishing imports and outward investment; restricting labour markets primarily to U.S. workers; massive business and personal tax cuts; and increased infrastructure spending. To be sure, some Canadian analysts are concerned that Mr. Trump’s policies could increase the stress on Canada’s economy. The future of Canada-U.S. trade is front and centre, although Mr. Trump’s objections to the North American free-trade agreement (NAFTA) are focused on Mexico. Canada has the benefit of a fallback position, since even in the unlikely event that NAFTA is abandoned, the previous Canada-U.S. free-trade agreement comes into play.
Aggressive business-tax reform and much lower U.S. corporate and personal income-tax rates would present another challenge; Canada may need to respond to ensure we continue to have a competitive business and personal income-tax system.
While a more favourable U.S. tax environment could make it more attractive to live in the United States, Mr. Trump’s closed attitudes toward a number of groups might counteract that, helping Canada benefit from a brain gain. The United States has already raised subtle barriers to entry for people through the attitudes and language of the lengthy election period, and those barriers may get formalized in a Trump administration. Higher U.S. immigration barriers would create opportunities for Canada to attract top talent with the best ideas.
If the United States adopts policies and attitudes unfriendly to foreign students, Canada could attract more international students to our universities, colleges and high schools. Attracting international students is arguably one of the smartest forms of immigration policy, since young people can quickly adapt to Canadian culture and languages while they develop their knowledge and job skills. International students also bring important revenues into our educational system. Similarly, we could attract more leading academics to Canadian universities and colleges, including Canadians now teaching in the United States.
The same argument would apply to international knowledge workers that face barriers, even subtle ones, to working in the United States. Microsoft has already expanded its research facilities in Canada. Other global companies could be encouraged to follow, especially from key parts of the knowledge economy such as Silicon Valley.
Next, Canada could actively position itself as a hub for global and North American investment, and for openness to trade. Because it has the Comprehensive Economic and Trade Agreement (CETA) and tariff-free access into the U.S. market, Canada will soon offer foreign investors from Asia and other markets a significant free-trade market advantage. Canada could capture a larger share of new Asian and European foreign direct investment. To be sure, Mr. Trump’s protectionist threats and deal-making could mean that companies keen on serving the U.S. market do their direct investment in the United States rather than abroad. But Canada’s stable, rules-based approach and openness to both trade and investment could help this country win even a small portion of new foreign direct investment intended for the United States, which would be a big gain for Canada. The federal government has already expressed a desire to attract more FDI, and the Trump trade policy agenda may provide Canada with an unintended opportunity.
Canada could also recommit itself to free trade, particularly with Asia-Pacific—in spite of the expected demise of the Trans-Pacific Partnership. We could invest more time and energy in existing free-trade deals, such as with South Korea, and pursue new agreements with Asia-Pacific partners. Japan should be at the top of the list. Free-trade discussions with India are already taking place (although moving slowly), and there are other options to explore, including with China.
Moreover, if U.S. climate-change and environmental policy goes backward, Canada could step forward on global green initiatives. Canada’s carbon policies will create incentives to develop low-carbon technology and services for countries that are investing in renewable energy, such as China. The U.S. low-carbon and green-tech market may become more limited in the near term under a Trump administration, but the global market is growing rapidly.
The Conference Board of Canada is conducting research to understand better the low-carbon business and trade opportunities for Canadian firms. Unfortunately, many European countries—and now China—are more advanced in their low-carbon policy framework and the business activity in these countries’ green sectors bears this out. Thus, many Canadian businesses are in a catch-up position in the green tech space.
As the Trump administration tilts toward closing U.S. borders to people and economic activity, Canada should do the opposite—creating a competitive advantage through openness to trade and investment.