McCarthy Tétrault recently held an event on the potential impact of the U.S. presidential election on Canadian businesses, focusing on themes such as the application of trade law, economic sanctions, tariffs, and effects on foreign investment, among other matters.
The panel of McCarthy Tétrault experts included Paul Zed, Counsel and Strategic Advisor; Awanish Sinha, Partner, Public Sector Group co-lead; Debbie Salzberger, Partner, Anti-trust/Competition & Foreign Investment Group; Martha Harrison, Partner, International Trade and Investment Law and Retail and Consumer Markets Groups; John W. Boscariol, Partner, International Trade & Investment Law Group head, and also featured a fascinating fireside chat with Steve Verheul, Canada's Chief Trade Negotiator from 2017 to 2021.
The following is Part 1 of a two-part series highlighting key takeaways from our conversation.
International Trade & Investment
Kamala Harris and Donald Trump have diverging approaches to trade and tariffs. Harris, continuing the Biden administration's policies, seeks to boost trade with allies in Europe, Asia and North America, while using tariffs and other economic tools to regulate trade with certain countries, such as China. On the other hand, Trump is proposing a more aggressive use, purportedly to protect U.S. industries and raise revenues. Trump has committed to a 10-20% tariff to be imposed on all imported goods and a 60% tariff on goods imported from China.
1. Canada's Strategic Positioning
In the ever-evolving landscape of international trade, Canada is positioning itself as a steadfast ally to the U.S., regardless of whether the administration is led by Harris or Trump. This strategic alignment is crucial, especially in the realms of foreign and trade policy. However, if Canada is not exempted from the global tariffs Trump is proposing, Canada has the ability to respond with retaliatory tariffs against U.S. imports, as it did during the last Trump administration. Additionally, Canada could strategically target industries that are important to U.S. members of congress, making these responses more impactful to address harmful tariffs.
2. The Risks and Impacts of Trade Measures
The application of tariffs poses a significant risk of inflation, as studies have demonstrated that tariffs can lead to increased costs. During former President Trump's administration, the tariffs enacted did not impact the trade deficit to the degree Trump had anticipated. Instead, there was also an overall job loss in sectors reliant on importing goods, such as manufacturing. Beyond tariffs, broader economic sanctions continue to be the "go-to" measure for Canadian and other western governments responding to geopolitical crises, and business should be carefully monitoring these developments especially with respect to their activities involving China.
3. Potential for a Trade War
Under a Trump administration, there is a higher risk of a trade war. If Trump were to implement across-the-board tariffs, he would be at risk of breaching U.S. trade treaty obligations, while causing damage to both the U.S. and Canadian economies. This would likely lead to retaliation from other countries, further escalating economic tensions. Businesses need to be prepared for this and should develop contingency plans. Indeed, there are a myriad of unintended consequences in trade wars, including negatively impacting industry sectors tariffs might be used to protect, including the overall manufacturing sector.
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4. Trend Towards Protectionism
Regardless of whether the election results in a Harris or Trump administration, the general trend in the U.S. is towards protectionist policies. The U.S. has generally focused on a more protectionist industrial policy, including 'Made in America' requirements. This shift puts Canada in a difficult economic position as it draws investment into the U.S. and away from Canada.
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Competition/Anti-Trust and Foreign Investment
Both Harris and Trump are expected to be influenced by "America First" policies, which could have significant implications for foreign investment. These policies may prioritize domestic businesses and industries, potentially leading to stricter scrutiny of foreign investments and mergers involving foreign entities. In terms of competition and anti-trust policies, Harris and Trump are both likely to continue the recent trend of vigorous trust-busting, but their approach is likely to differ in terms of enforcement priorities and boundaries.
5. Shift in U.S. Investment Focus
Flowing from "America First" and "Made in America" policies touted by both the Democratic and Republican platforms, U.S. capital, including private equity investment, may be expected to increasingly focus on domestic opportunities, potentially to the detriment of investment in Canadian businesses. While this may consequently reduce U.S. foreign direct investment in Canada, Canadian subsidiaries of U.S. businesses and Canadian sales and distribution partners of U.S. businesses may see indirect trickle-down benefits.
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6. Antitrust Enforcement Divergences
The Harris administration is expected to continue the Biden administration's expansive approach to anti-trust enforcement, including rigorous scrutiny of mergers and acquisitions and pushing the boundaries of traditional theories of harm in order to curb the power of large corporations and crack down on anti-competitive practices. In contrast, while Trump may be expected to vigorously pursue anti-competitive conduct, his focus is expected to revert to a more traditional analytical framework, and applied to a narrower group of industries.
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