How the U.S. midterm elections could shake up Canadian business: Don Pittis

Despite the tariff tit-for-tats and tense trade negotiations between Canada and the U.S. over the past two years, experts say a potential Democrat-controlled House of Representatives would not necessarily be better for the Canadian economy.

Some experts say a Democrat-controlled House could cause a few economic problems north of the border

No one knows for sure, but many pollsters predict the House of Representatives will switch from Republican to Democratic Party control after Tuesday's midterm elections. That might not be good news for Canadian business, some experts say. (Carlos Barria/Reuters)

Canadians who thought political and economic turmoil south of the border had reached a peak may be in for a surprise after tomorrow's midterm elections.

Until all the votes are counted, no one can be sure where the chips will fall, but there is increasing evidence that President Donald Trump's Republican Party could lose control of the House of Representatives.

Anti-Trump Canadians may be breathing a sigh of relief at the prospect, but some Canadian policy experts say a Democratic win is not necessarily better for the Canadian economy or Canadian business.

And even if the Republicans manage to hold on to both the House and the Senate, the increasing clash of ideologies stoked by the bitter campaign could create lasting divisions that will continue to plague Canada-U.S. economic relations.

Clashing ideologies

Those who find the current election process confusing would do well to read CBC Washington correspondent Matt Kwong's "primer on why November's elections matter."

But the shorter version is that in an already fractured U.S. political system, there is a good chance the body that passes the laws — the House of Representatives — will flip from Republican to Democratic Party control and thus be in direct opposition to Trump's executive branch, which runs the country and enforces the laws.

A nation, even households divided. Campaign signs for both a Republican and a Democratic Party candidate on the same front lawn in Chatham, N.J. (Nancy Lapid/Reuters)

If that outcome actually materializes, with the Democrats in control of the House and the Republicans the Senate, historian and former Canadian trade negotiator Michael Hart says there would be little chance of compromise between the two bodies.

"In earlier days, until about the 1980s, it was possible for Democrats and Republicans to form a coalition and pass legislation," says Hart, Carleton University's former Simon Reisman Chair in trade policy and author of A Trading Nation: Canadian Trade Policy from Colonialism to Globalization.

No centrist left

He says we should expect another budget impasse, and with a swollen deficit and the prospect of social service cuts to balance the accounts, there will be little room for coaxing centrist Democrats onside with new costly initiatives, including the mooted middle class tax cuts.

In an integrated North American economy, not knowing whether U.S. spending is on or off can make a big difference to Canadian suppliers, too. U.S. spending and borrowing policy affects bond rates and the value of the dollar.  

"There may be centrist legislators left but they dare not admit it," says Hart, who believes Democrats are raring for a fight.

"If Congress does go Democratic and they select Nancy Pelosi again, you have someone who," Hart pauses, "lacks wisdom, let's put it that way."

Democratic supporters would no doubt beg to differ, but the discord that Hart predicts could spell the end of not only any future pro-Trump legislation, but also the end of the new U.S-Mexico-Canada trade agreement (USMCA) that Foreign Affairs Minister Chrystia Freeland has been struggling over since Trump threatened to throw out the North America Free Trade Agreement.

After more than a year of negotiating, the new U.S.-Mexico-Canada trade agreement was finally reached. But experts say a divided Congress might fail to approve it. (Edgard Garrido/Reuters)

"Now that we have this replacement agreement, it's not a sure thing it will pass through Congress," Hart says.

Besides the possibility anti-Trump Democrats see USMCA as the president's baby, Hart says the new deal is actually more restrictive on trade than NAFTA.

Oddly enough, the effect of rejecting USMCA would be to keep NAFTA in place. But University of Saskatchewan public policy expert Daniel Béland, who has worked and studied in the U.S., says that ostensible trade continuity may be of little reassurance to business if it merely raises the ire of Trump and his supporters.

He says the inflamed rhetoric of the campaign is pulling the two sides into more radical opposition, adding to the business uncertainty of where the U.S. goes next. 

"It's really a division that's not just political anymore," says Béland, Canada Research Chair in public policy. "You watch MSNBC and Fox News and you think you live on two different planets."

He is worried that growing anger over issues such as immigration and trade could exacerbate the kind of violence we have already seen, as each side speaks exclusively to its own supporters, leading to yet greater uncertainty. In the case of Trump, unlike in the campaign that elected him, he does not have Hillary Clinton as a focus for his attacks.

"His foe is quite abstract," Béland says. "It's liberals or immigrants or specific target groups."

And with a Democrat-controlled House, frustration could push more zealous Trump devotees into greater extremism against their adversaries, real or imagined.

Oil and gas backlash

Another area where Canadian business interests could suffer is on environmental issues, says Bessma Momani, a specialist in financial and foreign policy at Waterloo's Balsillie School of International Affairs.

Appealing to a more environmentally conscious, urban electorate, a Democratic House could lead to a backlash against Canadian oil and gas projects, including the oilsands and pipelines such as Keystone, which are necessary to get Canadian oil to market.

"I think there's a risk there," Momani says.

U.S. President Donald Trump at a rally in Illinois last week. Intense rhetoric intended to galvanize his base could be exacerbating the political divide in the U.S. (Al Drago/Reuters)

Of course, for many Canadians, increased environmentalism, including support on climate change and automobile fuel-efficiency standards, would be seen not as a risk but a benefit.

A less controversial positive outcome for Canada is that a Democratic majority could help defuse the U.S.'s growing trade conflict with China, which Bank of Canada governor Stephen Poloz has called one of the biggest risks to the Canadian economy.

Momani also says that increased Democratic power could mean Canada and the U.S. could move ahead on what's called the "gender dividend," where increasing the percentage of women in businesses is calculated to increase revenue by more than three per cent and boost an economy struggling from a shortage of talent.

She says the president's daughter, Ivanka Trump, has been pushing the gender issue in the U.S. but has had little backing from the Republican administration or Congress. 

"There might even be, dare I say, bipartisan support."

Follow Don on Twitter @don_pittis


Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.