For months, Canadians have been watching the presidential campaign south of the border with a mix of fascination and anxiety.
Over the past four years, Canadians have watched President Donald Trump play hardball with Canada, a reflection in part of his cast of advisors and populist base. In particular, actions by the Trump administration during the NAFTA renegotiations and the imposition of steel and aluminum tariffs on contentious national security grounds saw Canadian leaders as divergent as BC NDP Premier John Horgan and Ontario PC Premier Doug Ford take direct swipes at the President. As a result, Trump has earned widespread enmity across the Canadian population, with voters of all party affiliations – including Conservatives – expressing a strong to overwhelming preference for his Democratic opponent, former Vice-President Joe Biden.
While the past four years have given us ample indication of what to expect in the event of President Trump’s re-election, less is known about what a Biden presidency will hold for Canada. With the outcome of tomorrow’s election still to be determined, there is nevertheless a widely-held presumption that a victory by Vice-President Biden would represent a return to some semblance of the pre-Trump status quo between the two countries, restoring an economic relationship that has thrived under both Democratic and Republican presidents alike.
It is a near-certainty that the Canada-U.S. relationship in such a Biden administration would be characterized by a more diplomatic tone and general alignment on shared matters of continental security. At the same time, a closer read of the Biden campaign platform and underlying pressure points in the American electorate indicate that the economic relationship across the 49th parallel can expect headwinds in the years ahead regardless of the result in the coming days.
Our goal at Counsel Public Affairs is to keep our clients ahead of the curve and informed about potential impacts of the upcoming election on their businesses and organizations. We’re sharing a deeper dive of several key sectors of the economy to help you prepare for the uncertainty ahead.
Automotive & Manufacturing
In 2019, President Trump revoked Obama-era fuel economy standards on personal vehicles. The Trump administration argued that by removing efficiency standards, the price of cars would drop, and more consumers would be able to upgrade to newer, safer vehicles.
Simultaneously, some states have forged ahead with their own fuel economy standards and aggressive zero emission vehicle (ZEV) policies. California, Colorado, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island and Vermont all have mandated that a certain percentage of future vehicle sales be zero or low emission vehicles.
California recently announced the most aggressive of these policies, essentially outlawing all internal combustion engine new vehicle sales by 2035.
Some industry observers have suggested that such policies are in conflict with federal jurisdiction, and that the state standards would eventually wind up in the Conservative-dominated Supreme Court in the event that President Trump is re-elected.
A Biden administration can be expected to implement new national emission standards but is unlikely to enact a national ZEV mandate policy. Instead, they may follow the Canadian policy of providing subsidies to automakers to retool their manufacturing lines so that they can increase the domestic ZEV supply.
The problem for both the United States and Canada is that rules of origin changes in the new USMCA agreement make a continental pivot to ZEV manufacturing very difficult. ZEVs are heavily reliant on components that are sourced in Asia, presenting a challenging supply chain problem that must first be resolved in order to reduce the cost of converting our vehicle fleet to electric.
Given the political will, both Biden and Prime Minister Trudeau may take on this challenge, seeking to build out a continental supply chain for electric vehicles. This would be an expensive and timely process, involving the establishment of everything from new rare earth mines to electronic component fabrication to battery manufacturing on a mass scale. Such an effort coincides with the broader American policy of pivoting away from Chinese-sourced rare-earth minerals and microchips. The US believes that over-reliance on the Chinese supply chain for electronic components represents a national security risk, particularly when it comes to satellites and other equipment used by its armed forces. Such initiatives may dovetail with the broader transformation of the auto industry.
Another option would be to reopen USMCA again to adjust auto-manufacturing rules of origin parameters to allow for low-cost foreign-made ZEV components to be included in North American manufactured vehicles. This would be a politically fraught process and would be extremely difficult to do without the blessing of organized labour.
Of interest to the broader Canadian manufacturing sector is Biden’s “Buy America” policy. In his platform, Biden outlines a very specific set of actions intended to cut foreign content out of goods procured by the United States government. He says that not only will $400 billion USD in procurement be available exclusively to American producers, but that he intends to tighten rules around foreign content in American-made goods and to reduce waivers and loopholes in the existing procurement guidelines.
Access to US government procurement has long been a flashpoint between our two nations, with the most recent conflagration taking place under the Obama administration’s 2009 Recovery Act, which sought to deny access to foreign suppliers. Canada eventually won concessions for its companies, getting partial access to Recovery Act opportunities. Prime Minister Trudeau will be looking for similar concessions ahead of any major US stimulus bill passed in 2021.
Natural Resources
Last year, Canada and the US entered into agreement to develop a continental supply chain to pivot away from the Chinese-dominated rare earth mineral market. Given rising distrust and bipartisan paranoia with respect to China, this effort is likely to continue under subsequent GOP and Democrat administrations. This effort represents a massive opportunity for Canadian industry, given our diverse and enormous reserves of rare earth minerals. Demand for these minerals is likely to skyrocket through the next century, as the need for batteries and electronic components expands at an incredibly fast rate.
When it comes to oil and gas, there may be less cooperation between our two nations under a Biden presidency. Biden has promised to rescind permits for the controversial Keystone XL pipeline, essentially killing the project mid-construction. His reasons for doing so are not only political (the project is unpopular with his urban progressive base) but also protectionist, as it moves more Canadian oil into an already oversupplied American crude market.
Cancelling Keystone XL would put more stress on beleaguered Canadian oil producers, putting huge pressure on Trudeau to confront Biden on the matter. Last week, Trudeau and Alberta Premier Jason Kenney agreed to work together in support of Keystone XL. While Canadian admonitions are unlikely to move Biden, expect some performative, WWE-style conflict between the two leaders on this topic.
Biden’s promise to ban new natural gas leases on federal lands is not expected to have any immediate impacts on the North American market but could have a modest impact on prices over the long term. About 9% of natural gas produced in the US is sourced from federally-managed land. As older federal leases expire and wells dry up, Canadian producers could see decreased excess supply and enjoy some much-needed upward pressure on natural gas prices.
On the never-ending softwood lumber file, not much is expected to change. No matter who is president, the US will continue to go after Canadian lumber exports cut on crown land, and Canada will continue to push back. The WTO recently ruled in favour of Canada on the matter. Biden has not signalled any willingness to back down on this file.
Environment
Beyond thorny domestic US politics around oil and gas development, environmental policy appears to be the leading topic of immediate alignment between an incoming Biden administration and the Trudeau government. Biden is campaigning on re-committing the United States to the Paris Climate Accords and a return to aggressive targets on carbon emissions and clean energy. This includes a commitment to legislate a path to net-zero emissions by 2050 – mirroring the Trudeau government’s plans.
Over the past four years, the Trump administration pursued an active environmental de-regulation policy, responding to business concerns by rolling back numerous Obama-era restrictions on clean water and air standards, hazardous chemicals, endangered species and more. Should Trump secure re-election, an emboldened White House would likely pursue even further de-regulatory measures, creating a widening competitive gap between the regulatory burdens faced by American and Canadian business.
It is reasonable to expect that a Biden administration will look to gradually re-introduce many of these regulatory restrictions, thereby reducing the comparative regulatory imbalance between the two countries.
Pharmaceuticals
With last weeks’ finalization of Patented Medicine Pricing Review Board (PMPRB) guidelines in Canada, some pharmaceutical companies are warning of cuts to research and manufacturing in Canada. The new pricing regime makes the development and early introduction of new drugs in Canada extremely difficult from a financial point of view.
Among other changes, the new PMPRB regulations adjust the “basket” of countries that Canada uses to set drug prices. Before, Canada simply took an average of the prices paid by a list of OECD countries. In the new regime, they have removed the United States and Switzerland as the highest cost jurisdictions from that formula, bringing the average price significantly down.
South of the border, Trump did something similar for Medicare recipients, a move that primarily bit into drug insurance rebates. This measure was coupled with a more haphazard effort to try and legalize bulk drug imports from Canada – a complicated scheme directed at older voters which would challenge Canada’s drug supply if it ever came to fruition.
Biden’s health platform also promises to allow Americans to import approved drugs from other countries and proposes to establish a PMPRB-like body to cap the prices for new medications. This dynamic will shape the drug pricing dispute in Canada. If the US continues with a more industry-friendly approach, it is possible that the pharma industry will make good on their warnings and Canada could lose significant R&D and biotech investment to the US.
Widely divergent drug policies could have an even greater impact at a time when citizens of both countries are anxious to obtain COVID-19 vaccines as soon as possible. While both governments have negotiated substantial commitments from drug makers to secure vaccines that are still in development, the timeline of vaccine delivery to our respective populations is very much up in the air. As it stands, Canadians may have to wait until Americans get the vaccine first – which could create a political challenge for the Trudeau government.
Counsel will continue to monitor the status of the upcoming election in the United States and its aftermath and keep you up to date on the information that you need to know about the future of Canada-US relations.
Insights by Devan Sommerville, Associate Vice President, and Ben Parsons, Account Director, Federal Advocacy.