Donald Trump’s election victory set off a political earthquake that has deeply shaken Americans. Earthquakes are often followed by devastating tsunamis generating huge waves travelling far beyond the quake epi-centre. Yet, even as those “Trump-quake” waves threaten to sink our economic ship, Prime Minister Justin Trudeau seems determined to maintain his pre-quake course.
Here are some of the dangerous shoals that lurk along that perilous route:
- Trump is anti-free trade. His advisors have said that Canada isn’t their target. Even if that’s true, the recent decision by General Motors to move 600 jobs to Mexico demonstrates that Trump’s protectionist bullets can ricochet across our border. Given his bombastic threats, there’s no way auto makers will move jobs from the U.S. to Mexico, so their only option is to move those jobs from Canada. Making matters worse is the new administration’s plan to exempt export revenues from income tax, while disallowing imported goods as a tax expense. These damaging actions are occurring even before NAFTA comes up for reconsideration. Trudeau is pivoting towards China as an offset to Trump protectionism. But a free trade agreement with corrupt and opportunistic China would be strategically and ethically unwise. Canadians keep their word, while the Chinese are notorious for saying one thing and doing another. And given Trump’s animosity towards China, free trade discussions with China are sure to damage Canada’s negotiations with his administration. One can easily envision him exclaiming, “We will not allow NAFTA to be used to give China free access to America”.
- Trump plans to slash corporate tax rates to 15 percent, erasing Canada’s previous advantage that saw U.S. companies changing domicile through reverse takeovers. Adding Trudeau’s carbon tax tips the tax scales in America’s favour. Moreover, Trump’s “Buy America First” policies will be a strong deterrent to creating or expanding operations in Canada that target U.S. markets. All this bad news comes when Canadian business investment has already been dropping for eight consecutive quarters.
- Trump plans to reduce the top federal personal income tax rate to 33 percent, while Trudeau’s increases on higher income earners raised the top rate to 33 percent. Sounds like a tie, until state and provincial taxes are considered. Seven U.S. states have no income tax and, with the exception of California, taxes in those that do are much lower resulting in combined rates of between 33 and 42 percent, compared with Canada’s 49 to 54 percent. This presents a serious impediment to attracting and retaining skilled, highly mobile workers.
- Trump wants to encourage more oil production to create jobs and reduce imports. Trudeau recently told Albertans he wants to “phase out” oil production. Perhaps he’s unaware of oil’s crucial importance to Canada’s balance of trade, generating as much net export revenue as the next nine of our top 10 exports combined.
- Trump wants to streamline the regulatory process for new oil pipelines. Trudeau is contemplating a new regulatory process featuring even more extensive “social licence” consultations that have already seen economically important projects stymied for many years.
- Trump wants more natural gas hydraulic fracturing, a key contributor to jobs in some of the country’s poorest states. Meanwhile, the Federal Government continues to hand some $18 billion per year in equalization payments to the four so-called “have not” provinces that have banned fracking. Perversely, the funding of those payments has come almost entirely from tax revenues of oil and gas producing provinces. But now the economies of those provinces, and the federal tax revenues from them, have collapsed. Under the three-year rolling average calculation of the equalization formula, payments to the four frack-shunning provinces will start a precipitous drop at the same time as Trump-quake takes its toll on Canada’s economy.
- Trump supports coal-fired power generation. Trudeau wants to replace coal-fired power with much more costly “green” alternatives. That will add more challenges to the struggling economies of Alberta, Saskatchewan, Nova Scotia and New Brunswick which don’t have hydro-power alternatives.
The federal government recently released a study projecting three decades of continuous budget deficits that would double national debt to an incredible $1.5 trillion. That’s an unconscionable legacy to leave on the shoulders of young Canadians and their offspring. And the federal study didn’t consider the above Trump-quake impacts that are certain to make that terrifying debt scenario even worse.
I’m one of many Canadians who detest Donald Trump as an uber-egotistical, narcissistic, lying bully with ethical values vastly below those of our Prime Minister. But the stark reality is that virtually all of Justin Trudeau’s policies, from energy regulation to tax rates to income and carbon taxes to deficit spending, are economically suicidal in the face of Trump’s avowed actions. Clinging to those policies in the face of Trump-quake could prove to be the biggest mistake made by any Prime Minister in Canadian history.
Gwyn Morgan is a retired Canadian business leader who has been a director of five global corporations.