by Kevin Anseeuw on 11.04.2016
by Kevin Anseeuw on 11.04.2016
Because the Canadian economy relies so heavily on that of the U.S, it is important for Canadians to understand the potential effects that the upcoming presidential election might have on our economy. Rather than delve into the personalities or styles of the candidates, this analysis will be limited to their potential effects on economics and investments. The question we will ask is, ‘which candidate would be more beneficial for Canadian investors?’ and we will base our thoughts on the candidates’ potential effects on three intertwined elements: economic growth, international trade, and immigration.
The Canadian economy tends to move in unison with the U.S. economy, usually with a lag of one or two quarters. In other words, when the U.S. economy expands, Canada follows a few months later. Under periods of economic expansion, the demand for capital increases which drives up interest rates on corporate and government bonds. Increased sales also typically lead to increased corporate profits and higher share prices during these periods. Less positive effects, like inflation and increased borrowing rates for individuals, can also follow. The Globe and Mail and CIBC have found that since 1930, the annual growth rate of the U.S. economy has been 1.7% for Republican presidents and 4.5% for Democratic presidents, while Canada’s GDP since 1962 has grown annually at 2.8% and 3.7% for Republicans and Democrats respectively. This study indicates that Americans and Canadians experience greater economic expansion under Democrat presidents. Without determining the cause, but based solely on changes to real GDP, history suggests that Hillary Clinton would generate greater growth than Donald Trump.
Trump and Clinton have both presented opinions and policies regarding the tightening of American international trade to promote exports and limit or discourage imports. Both candidates have portrayed the U.S. as a massive market being exploited by foreign firms and that those foreign countries have not been nearly as ‘fair’ to American firms when allowing access to their domestic markets. Trump would like to eliminate the North American Free Trade Agreement (NAFTA), while Clinton would like to renegotiate it, and both candidates oppose the Trans Pacific Partnership (TPP). Canada has always been a strong trading partner with the U.S. and according to Global Affairs Canada, 35 American states consider Canada their number one trading partner. One would presume that neither candidate would benefit from alienating 9 million American workers and their employers through stricter trade agreements between Canada and the U.S., so time will tell if they stick to these campaign promises or if economic factors shift their political positions in another direction.
Donald Trump has taken a definitive black-and-white stance when it comes to immigration. Trump strongly affirms that restricting immigration for the sake of national security is his position. Hillary Clinton has indicated that security measures must be in place during the immigration process, but that maintaining immigration levels along with security measures increases national security. Based on a 2014 report, “Migration Policy Debates” by the Organization for Economic Co-operation and Development (OECD), restricting immigration would harm the U.S. economy. With 76% of Canadian exports in 2015 going to the U.S. according to StatsCan, Canadians would surely feel the economic effects of a restrictive immigration policy.
Based on historical data, summarizing the candidates’ positions, and their anticipated effect on the Canadian economy, it would seem that Hillary Clinton’s proposed policies stand to benefit the Canadian economy the most. For those same economic reasons, she would seem to also be the most attractive candidate to most Americans. However, politics never seem to be as simple as an economic pro and con list with ‘what’s best for me’ totaled up and then reflected in the ballot box. The election process is a highly emotional one, culminating in the voting results pouring in on election night. At the end of the day, the true impact of either candidate as president will unfold during the next four years. As you know, this election seems to have been particularly emotional and dramatic, so I know what I will be watching on TV this coming Tuesday.
Have a great weekend,
“I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone, and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc.”Disclaimer – This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use, and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. Laws and regulations are continually changing and their application and impact can vary widely based on the specific facts involved and will vary based on the particular situation of an individual or entity. Prior to making any decision or taking any action, you should consult with a professional advisor. The information is provided with the understanding that Harbourfront Wealth Management is not herein engaged in rendering legal, accounting, tax or other professional advice. While we have made every attempt to ensure the information contained in this document is reliable, Harbourfront Wealth Management is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or as to the outcome to be obtained from the use of this information, and is without warranty of any kind, express or implied. The opinions expressed herein do not necessarily reflect those of Harbourfront Wealth Management Inc. The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. The opinions expressed are not to be construed as a solicitation or offer to buy or sell any securities mentioned herein. Harbourfront or any of its connected or related parties may act as financial advisor or fiscal agent for certain companies mentioned herein and may receive remuneration for its services. Harbourfront Wealth Management Inc. is a member of the Investment Industry Regulatory Organization of Canada “IIROC” and the Canadian Investor Protection Fund “CIPF”.