Philip CrossInequality, climate change and trade are just some of the files on which both Canadians and Americans can expect major changes as Donald Trump sets up shop in the White House, writes Philip Cross.

By Philip Cross, Nov. 14, 2016

The unexpected election of Donald Trump as president of the United States has great significance both for the U.S. and Canada, but not entirely in the ways articulated by the very pundits who completely dismissed the possibility of his election in the first place.

Most obviously, a Trump presidency signals that inequality will not become the dominant issue in American politics, no matter how many books are sold by interventionist economists like Thomas Piketty, Joseph Stiglitz and Paul Krugman. Instead, Americans elected its most brash, unapologetic member of the so-called 1 per cent, a billionaire who openly bragged about his riches and not paying taxes. His triumph means inequality cannot be “the defining issue or our generation” as Obama claimed. While Trump promises to raise taxes slightly on the rich, he also calls for steep cuts to America’s deeply-flawed corporate income tax, perhaps a reflection that he is the first U.S. president with an economics degree.

The unexpected election of Donald Trump as president of the United States has great significance both for the U.S. and Canada

Second, climate change as either a goal in itself or as a Trojan horse to smuggle in an interventionist agenda (it is often hard to tell which motivation drove Obama’s fixation with environmental and energy regulations) also is emphatically off the agenda of the U.S. government for at least the next four years. Trump does not support the Paris climate change accord, which was never going to pass a Republican congress anyway. Instead, he enthusiastically supports the development of fossil fuels.

For Canada, Trump’s election is a clear and present danger to our manufacturing sector, but not for the reason most pundits cite. Trump owes his election victory to the message that resonated in the Rust Belt states promising not just better trade deals (which is aimed at Mexico and China, not Canada) but a whole raft of pro-business policies covering taxes and regulation. Economic growth, not the redistribution that preoccupied Obama, is at the core of Trump’s agenda.

The threat is particularly acute for Ontario’s factories, which are already struggling to grow despite the boost they were supposed to get from lower oil prices and a devalued loonie. Faced with soaring electricity costs, a growing web of productivity-inhibiting regulations, and a thickening border with the U.S., direct investment flows in manufacturing have shrunk from a substantial net inflow into Canada between 2007 and 2012 to a trickle over the last four years. It is this reversal, not the supposed destruction of capacity due to a high loonie, that helps account for the slump in Canada’s factory sector that has analysts scratching their heads. The problem is most acute for Ontario since Quebec’s large manufacturing sector is less threatened by developments in the U.S., reflecting much lower electricity costs and a greater orientation of its trade to Europe, which stands to benefit from the recent passage of a free trade deal with the EU.

For Canada, Trump’s election is a clear and present danger to our manufacturing sector

Ultimately, the election of Trump is a repudiation of President Obama. His legacy policies of income redistribution, environmental regulation and extended health care all stand to be overturned, while his Supreme Court nominee to replace arch conservative Antonin Scalia is doomed. Obama has been called the first Canadian president, which I interpret as meaning he had a profound attachment to deficit spending and a timorous approach to national defense. Thomas Sowell, one of America’s best economists, described Obama as “glib, sophomoric, narcissist,” anticipating exactly how pundits dismiss Trump.

More fundamentally, Trump is the inevitable legacy of a generation of politicians, epitomized by Obama’s signature appeal in 2008 to “Hope and Change,” who have cynically used the promise of change to get elected and then delivered the same tired policies that failed to deliver economic security at home or address the threat of terrorism from abroad. Americans may not always like the change that Trump will deliver, but real change in Washington is now assured.

Philip Cross is the former Chief Economic Analyst at Statistics Canada

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