The Trump administration: A time for concern but also optimism

U.S. stimulus program could benefit Canadian entrepreneurs

Economic growth in Canada appears to be gathering steam after two sluggish years caused by the slump in oil prices. Now, many entrepreneurs are asking themselves whether the election of President Donald Trump could slam the brakes on the Canadian economy. While it’s still early, an analysis suggests there are some risks but also reasons for optimism.

Let’s start with Trump’s aggressive economic stimulus plan. Announced during the election campaign, the plan includes large cuts to personal and corporate taxes and massive infrastructure spending. We don’t know how much of this stimulus package will actually be implemented or when. However, stronger economic growth south of the border is normally positive for the Canadian economy because it leads to increased demand for Canadian products and services.

On the other hand, the deep corporate tax cuts proposed by Trump would make the Canadian tax system less competitive compared to that of the United States, a situation that could be compounded by the new President’s intention to slash business regulations. Together, these policies could encourage businesses to set up shop in the U.S. rather than in Canada.

Pressure on interest rates

Another risk is higher interest rates on both sides of the border. With an unemployment rate of just 4.8% and wages heading higher, many observers believe that the U.S. economy is already running at or near full capacity. Therefore, Trump’s plan to stimulate demand could drive inflation higher, leading the Federal Reserve to increase interest rates faster than expected to cool the economy. Higher interest rates south of the border might trigger an increase in Canadian rates, even though most observers don’t expect the Bank of Canada to raise its key interest rate before the end of this year.

The U.S. and Canada have developed close trade ties over the years, and these have been strengthened by trade agreements. Approximately 75% of Canadian merchandise exports are bound for the United States. Canada’s share of U.S. exports is smaller at 19%, but we remain nevertheless the U.S.’s top export market. Therefore, it’s in both countries’ interest to preserve good trade relations.

Fundamentals remain strong

What’s the bottom line for Canadian entrepreneurs? The new reality for many businesses operating in the U.S. market is that they will have to learn how to manage through the changes of policy of the new administration. However, economic fundamentals remain very positive. The U.S. economy is among the most vibrant in the world and global economy as a whole is growing. Canadian entrepreneurs should continue to invest in their businesses and seek export opportunities, in the U.S. and beyond.