Business·Analysis

Canada and U.S. on diverging tracks as Trump signs climate order: Don Pittis

U.S. president Donald Trump wants to cut taxes on the rich, block immigration and cut social and environmental policies. Can Canada find greater success by going its own way?

Should Canada 'get with the room' or can the country do better by going its own way?

Canada and the U.S. used to be on the same track on many issues, but since President Donald Trump arrived thing are getting confusing. (Istock)

Only six months ago, Canada and the United States seemed like trains on the same track.

Sure, there were policy differences. But especially after the election of a Liberal government in Ottawa, the two capitals were generally agreed on climate change, free trade, immigration, taxes, bank regulation and many other issues.

But suddenly, with the election of Donald Trump as U.S. president instead of the widely expected Hillary Clinton, everything changed.

Different tracks for different folks?

This week, as Trump makes new announcements to soften rules protecting the environment and hints emerge of $18 billion in cuts to social programs, it is as if someone had suddenly opened a switch and turned Canada and the U.S. onto completely different tracks.

If the U.S. abruptly changes direction, can Canada afford to follow its own path?
U.S. President Donald Trump holds up an executive order on 'energy independence,' eliminating Obama-era climate change regulations, at the Environmental Protection Agency headquarters. (Carlos Barria/Reuters)

It was a question that came up obliquely during the recent federal budget as the Liberal government put off details to wait for developments south of the border. 

In the U.S., Fed chair Janet Yellen has raised interest rates twice with at least two more quarter-point rate increases possible later this year to compensate for the stimulating effect of new Trump spending and tax cuts.

I think Canada has the opportunity to present itself as the new shining city on the hill, the place that welcomes diversity and innovation.— Frank Graves, Ekos Research

Yesterday Bank of Canada governor Stephen Poloz seemed gloomy and disinclined to raise rates. That is helping to push the Canadian dollar down.

"We talk about serial disappointment. It looks OK, but then some new shock comes along," Poloz said yesterday. 

Bad or really bad?

Growing protectionist rhetoric from the United States represents one of the potential shocks of diverging policy.

"If a tariff went up across a border, then consumers on two sides of the border may react differently to those different prices," said Poloz. "Will it be slightly bad for your business or really bad?"
While the U.S. central bank is raising interest rates, Bank of Canada governor Stephen Poloz seemed to be heading the opposite direction. (University of Ontario Institute of Technology/Twitter)

Until recently, polling data from Ekos Research have demonstrated that values in Canada and the U.S. are remarkably similar, says Ekos president Frank Graves. And like Trump supporters, many Canadians face anger and despair.

Similar and converging

"The values in aggregate held by Canadians and Americans [show they] are probably the most similar societies in the world and the pattern has been one toward greater convergence, not divergence," says Graves.

Of course, the U.S. and Canada can see dramatic swings in government policy following an election. 

An example of one of those swings was yesterday's new presidential order opposing climate change.

"My administration is putting an end to the war on coal," said Trump. "To reverse government intrusion and to cancel job-killing regulations."

Just as Trump was celebrating his new climate policy Erin Flanagan from the environmental group the Pembina Institute was issuing a release congratulating the government of Canada for sticking to its climate plan.

Flanagan says Trump is simply missing the boat by failing to support a booming U.S. clean-energy industry.

"It's clear that the world is changing," she says. "I think it's a really great signal that our government is not going in that Trump direction." 

Many supporters of the fossil fuel industry in Canada disagree, saying the divergence in policy will be just one more hit for a troubled sector as U.S. producers get a competitive advantage.

Businesses outside the sector are also worried their U.S. competitors could garner further advantages from tax cuts, tariffs favouring the U.S. and deregulation. Meanwhile a free-trading Canada would face competition from Europe, Asia and Mexico.

Canadians for Trump

Already Ekos research shows a Canadian backlash against Liberal policy and in favour of Trump. Graves says among Canadian Conservatives, his polling show 57 per cent support Trump's policies although that compares to "single digits" among everyone else.

Graves points out that Canada has taken profoundly different policy positions from the U.S. over the years. Before the arrival of Trump it seemed the U.S. was gravitating toward Canada with a move to socialized medicine and legalized cannabis.
It may not be bad that Canada and the U.S. seem to be heading down different political and economic tracks. (Transportation Safety Board of Canada)

But as to whether Canada should stick to its own values or, as Graves says, "get with the room" and be more like the U.S., Ekos polling shows Canadians remain "pretty divided," though people are generally agreed that Prime Minister Justin Trudeau should cultivate a personal relationship with Trump.

But it is possible that at this moment in history, divergence is in Canada's interests. For instance, there are credible forecasts showing Mexico will be the fifth largest economy in the world by 2050, he says.

Is the U.S. going to hell?

"So why would we want to be tying ourselves to the American economy when it may be just going to hell in a hand basket?" asks Graves. 

Rather than cutting taxes for the rich and deregulating to boost the economy, Canada can fight anger and despair by emphasizing skills training, knowledge, greater economic equality and openness to the world. 

"I think Canada has the opportunity to present itself as the new shining city on the hill, the place that welcomes diversity and innovation," says Graves.

Follow Don on Twitter @don_pittis

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About the Author

Don Pittis

Business columnist

Don Pittis 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. He is currently senior producer at CBC's business unit.