Budget 2024

Tax and spend fiscal plan will inhibit growth

A long and acrimonious U.S. presidential election is over, marking the end of one of the most turbulent periods in recent memory for the Canada-United States relationship.

Joe Biden’s presidency will likely represent a return to warmer and more stable bilateral ties between our two nations. But it’s important to recognize that Biden’s economic plans for his country bring a new set of challenges for policymakers in Ottawa and provincial capitals across the country. Furthermore, Mr. Biden will become President at a time of rapid and structural change in the global economy.

The growing geopolitical and technological rivalry between the United States and China is changing assumptions about global commerce and geopolitics. As a mid-sized economy dependent on trade for two-thirds of its GDP, Canada is highly vulnerable to any disruption to the global trading system. This is the reason, of course, that Canada has relied so heavily on the multilateral rules-based international order as a foundation for its economic stability and prosperity. The U.S. and China are Canada’s first and third-largest trading partners, representing 60 percent of the total value of Canadian trade in 2018.  A protracted, zero-sum conflict between these two global giants will necessarily have far-reaching consequences for Canada’s economic and geopolitical interests.

A renewed era of great power competition is now the backdrop for domestic and foreign policymaking. Many countries are responding to these “geoeconomic” developments by thinking differently about the role of public policy to support domestic innovation and cultivate firms and technologies that give them national advantage.

These countries are shifting their focus to recognize the importance of establishing an industrial strategy framework that sees a greater role for the state in supporting technological innovation and shaping market outcomes within domestic borders.

The President-elect’s economic plan very much aligns with this new thinking and will have implications for Canada.

  1. Trade: From terminating NAFTA to withdrawing from the TPP and undermining the WTO, it is hard to imagine an American president shaking up the multilateral trading system more than Donald Trump. But Canadians must realize that we now live in an era of managed trade. Mr. Biden’s US$400-billion “Buy American” procurement policy could present real challenges to Canadian exporters. The Trudeau government should make sure Canadian companies will not be excluded given the integration of our North American supply chains.
  1. Innovation: Biden’s plan for innovation is bold and ambitious: US$300-billion on research and development – including electric vehicle technology, lightweight materials, 5G and artificial intelligence – to unleash high-quality jobs in high-value manufacturing and technology. With a focus on policies for skilled immigration, the U.S will now undoubtedly become the primary recruiter of global talent. President-elect Biden’s plan represents the largest mobilization of public investments in procurement, infrastructure, and research and development the United States has undertaken since the Second World War. This should challenge Canada to raise its game significantly on the innovation front. It is time to become more intentional and leverage our intellectual capital.
  1. Climate change: A Biden presidency represents an opportunity for Canada and the U.S to coordinate efforts to meet Paris climate goals.  His plan includes new spending in clean energy, transportation and infrastructure, and sets the goal of 100 per cent of the country’s electricity generated by carbon-free sources by 2035. Canada is well positioned to benefit from Biden’s support of hydrogen, but only if Canadian policymakers move fast to help the industry reach its full potential – as other countries are doing. Biden’s climate change policy also signals a more stringent framework for carbon-intensive products imported into the U.S., which could drive up costs for Canadian exporters in the more immediate term.  Canada will no doubt continue to be a valued supplier of oil, natural gas and hydroelectricity to the United States, especially as Canada’s energy sector continues to invest in cleaner energy and emissions-reducing technologies. But the federal government will need to impress upon the new Biden administration the importance of the Keystone XL pipeline – it will be an important part of the energy mix for years to come.

The bottom line is this: The United States and other countries around the globe are preparing for a post-COVID world that looks significantly different than the one before. Canadian policymakers cannot return to business as usual. If anything, the election of Mr. Biden should challenge the Canadian government to think coherently about its economic policy and consider how it will increase its overall economic competitiveness.

To help guide the policy conversation, the Business Council of Canada recently released “Powering a Strong Recovery: An Economic Growth Plan for Canada,” which outlines the most pressing challenges facing the country and a framework for how to overcome them. Canada cannot afford complacency. Our policymakers must resolve to meet the country’s most pressing challenges in this period of transformational technological and geopolitical change.

As posted on LinkedIn.