US Election
by Kevin Anseeuw on 11.04.2016
Executive Summary
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.
Economic Growth
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.
International Trade
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.
Immigration
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.
Bottom Line
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,
Kevin
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