Executives better get used to handling political risk no matter who wins the U.S. election
Much of the Canadian analysis of the Nov. 3 vote in the United States would have made a former editor-in-chief crazy. He had banned the use of the word “but” in all stories, yet for Canada’s pundits, it’s the “yes, but” election.
Yes, American voters seem “tantalizingly close” to replacing President Donald Trump, “but Canada will be tested no matter which candidate wins the coming presidential election,” Roland Paris, a former adviser to Prime Minister Justin Trudeau who now teaches international affairs at the University of Ottawa, said in the Globe and Mail on Oct. 24.
“Joe Biden’s ties to Canada run deep — but his party’s bent towards protectionism may run deeper,” read the subhead of a CBC analysis on Oct. 28.
You get the idea. My old boss loathed “but” because he felt it encouraged fuzzy thinking. He had a point. It’s uninteresting that Biden, who appears poised to end Trump’s unsettling four-year reign , will introduce a new set of irritants. That would make him like every U.S. president — ever. The story of the U.S. election for Canada is that it will complete that country’s descent into chronic instability. That’s new.
Biden’s desire to implement an expensive industrial policy focused on green energy, the Democratic Party’s lurch to the left, the partisan hijacking of the Supreme Court on the eve of the election, and the ugly brand of nationalism whipped up by Trump and embraced by a new breed of Republicans can only result in a political condition that will make the U.S. an uncharacteristically difficult place to do business, like so many of the emerging markets Canadian executives avoid because local politics are unfamiliar and messy.
“The big risk is if this Trump culture moves forward,” with or without him in the White House, said Andreas Schotter, an associate professor of management and international business at the University of Western Ontario’s Ivey Business School. “I don’t think it will go back to normal. There has always been an ‘America First’ attitude.”
That’s a problem. Canadian business investment has been in a rut for years, in part because the tariffs, regulations and tax rates that direct the flow of commerce in North America have been in constant flux for the past four years. There is little reason to think that will change under a Biden presidency. It could even get worse, especially if Republicans manage to hold the Senate.
A Canadian technology executive who does most of his business south of the border told me he was unmoved by Biden’s “Buy America” plan. Any Canadian company that is serious about exploiting the U.S. market neutralized that risk years ago.
Nor did he care if Trump manages to claim an improbable number of the swing states that dictate the outcome of presidential elections. The new North American trade agreement is settled, and the current president tends to harass old-economy exports such as aluminum, not the digitally oriented services that account for much of the economic growth.
What troubled this exec was the possibility that Trump would refuse to leave the White House if the result is anything but crystal clear. He didn’t see that as a likely scenario, but it bothered him that it was a plausible one. If the smooth transfer of power in the U.S. is up for debate, then nothing is sacred. The U.S. election cycle is now a variable in almost every North American business decision, along with the cost of labour, tax rates and distance to market.
“What we care about is how stable is the landscape,” said the executive, who asked to remain unnamed. “We’ve gotten used to stability.”
Biden represents the better choice for Canada, if only because his election would represent a victory for decency over misogyny, racism and serial lying. A Biden-led administration would also mount a more effective fight against the pandemic, since it would approach the crisis seriously, rather than cynically like Trump, thus increasing the odds of the Canada-U.S. border reopening to non-essential travellers.
An open border would allow Canadian companies to more easily participate in the U.S. economic recovery, which will be stronger if Democratic candidates reclaim the White House and the Senate, according to Oxford Economics. The research group estimates Democratic policies would result in economic growth of 4.9 per cent in 2021, while Republican control would correlate with an expansion of only 2.3 per cent.
Still, even if Biden represents a milder breeze, the wind will continue to blow in the same direction. Alex Bishop, a partner at Concierge Strategies, a Toronto-based business consultant, said Trump’s hostility forced Canada to toughen up a bit, and he thinks it would be a mistake to lose that newly acquired sense of independence just because Biden reminds some of a friendlier time.
Trump’s trade policies had significant Democratic support, and confronting China is one of the few issues on which both major U.S. parties agree. Canada should still look for ways to hedge its dependence on the U.S. economy.
“It’s hard to move,” Bishop said. “The good thing about Trump is that he forced Canada to look at things differently.”
Whoever wins, political risk, still a relatively new variable for a lot of Canadian executives, is here to stay. Governments and companies will have to step up their lobbying and intelligence gathering so they can stay ahead of tariffs and regulations. Some will need to rethink supply chains and possibly locate production in the U.S.
It means leaders are going to have to earn their paycheques. “Companies will have to be on their toes,” Schotter said. “They will need their A-game.”
Financial Post
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