Donald Trump: boon and bane of the Canadian economy?

The election of Donald Trump as the US President has caused quite a stir. Particularly because his opponent, Hillary Clinton, was already seen as the clear winner in the election forecasts. Directly after the announcement of the election results, the servers of the Canadian immigration authorities broke down. Many Americans reacted emotionally and started looking into emigrating to Canadian regions such as Nova Scotia – a popular tourist destination and one of Canada’s three “Maritime” provinces. Buying real estate and building a house there seems more attractive now to many Americans than doing so on their own land. It is remarkable that a new US president is having a major effect on the Canadian economy.

The new American economy

During his election campaign, the new US President expressed many ideas for the economy that made the hair of many a serious economist stand on end: the construction of a wall on the Mexican border, tax reductions without cutbacks in state spending and the boosting of coal-fired power plants. Well, apart from climate change, which in the eyes of Donald Trump does not exist. Trump’s plans for the economy have been warmly welcomed by large farms, oil barons and the weapons industry. For Canada, the plans for the NAFTA free trade zone are of special importance. NAFTA stands for “North American Free Trade Agreement” and came into force on 1 January 1994. The free trade zone comprises of three countries: the USA, Canada and Mexico. Trump calls the agreement the “worst deal ever” and speaks openly as a significant critic of free trade agreements. American farmers are hoping for more freedom to eradicate the supposed disadvantages suffered by the USA in the international trade agreement, e.g. more leeway when using pesticides or fertilising fields.

NAFTA – new game rules for Canada?

International experts expect that Donald Trump will effectively terminate the NAFTA agreement. In the agreement, there is a six-month blocking period until termination becomes effective. Trump will use this break to negotiate better terms. Canada has already publicly signalled its willingness to negotiate. Trump is acting completely according to his motto of “America first”. This guideline can be transferred to the NAFTA agreement – the future foreign trade policy will predominantly serve the interests of the USA. Canada and the USA are closely interlinked in terms of their economies, which is why the plans of the USA have caused unease. The USA is Canada’s most important investor; 75 percent of Canadian exports are supplied to the USA. Canada’s economy is directly influenced by the USA. Despite the new negotiations, the OECD anticipates economic advantages for the Canadian economy based on a “spillover” effect. The planned investments in the American infrastructure could stimulate the Canadian economy, in the short term at least. Canada is interested in re-negotiating the NAFTA agreement, not least because the decades-old agreement does not take into account many aspects, such as simplified visa arrangements for border-crossing employees and the requirements of the digital economy – or country-of-origin and bio labels.