Trump 2.0 and Canadian Provinces
As the political landscape in the US stumbles towards a Trump return, Canadian provinces find themselves in a familiar position of preparing for a tornado and praying for a chinook. The first Trump administration ushered in a period of significant uncertainty that tested provincial leaders and their economic development agencies active in the US. As the sequel approaches, it’s crucial for jurisdictions aiming to attract US investment to keep their heads out of the sand.
Trump 1.0
The inaugural Trump presidency provided a unique opportunity for provincial governments to show their ability to improvise. Sudden tariff announcements and threats of agreement withdrawals became the new normal, forcing provinces and businesses to develop more flexible economic strategies. Adaptability became not just a virtue but a survival skill.
Certain industries found themselves particularly vulnerable to U.S. trade actions. The steel and aluminum sectors faced significant tariffs, while long-standing disputes in industries such as softwood lumber intensified. This targeted approach highlighted the need for sector-specific risk assessments and mitigation strategies. Conversely, there was a notable uptick among US tech companies interested in expanding to Canada, both to relocate employees and also take advantage of more friendly immigration policies. Cities that had been active in the sector and had established long-standing relationships with tech leaders and venture capitalists were well-positioned to capitalize on this opportunity. Looking at you Waterloo, Toronto and Montreal.
The renegotiation of NAFTA, resulting in the USMCA, demonstrated that even decades-old agreements weren't immune to revision. While the final agreement maintained many benefits for Canada, the process revealed the precarity of existing trade frameworks. It was a stark reminder that even the most established deals can be upended.
Provinces found that building relationships with U.S. states helped buffer against federal tensions and showcased the complex Canada-U.S. economic ties. Provincial leaders realized that allies at multiple levels provided stability during federal volatility. Using economic impact data, provinces could effectively demonstrate mutual trade benefits, strengthening their position in policy discussions. This data-driven approach became a key part of strategic economic diplomacy, allowing provinces to present strong evidence in negotiations. That said, no amount of data can build a relationship of trust or a relationship that persists through both periods of low interest rate boom times or post pandemic contractions or populists upswings. Those provinces who develop deep relationships despite the periodic changes in political weather, are the ones who win.
Trump's Platform: Potential Implications
As we consider the possibility of a second Trump term, several aspects of his current platform deserve attention. Trump's protectionist stance shows no signs of waning, and provinces should prepare for potential new tariffs, increased use of "national security" justifications for trade actions, and general skepticism towards free trade agreements. The landscape of trade could once again become a minefield requiring careful navigation.
Trump's emphasis on "reshoring" manufacturing jobs to the United States could lead to policies incentivizing U.S. companies to relocate production from Canada or penalizing those that maintain significant operations outside the U.S. Canadian provinces might need to find new ways to keep their manufacturing sectors competitive amidst shifting incentives and regulations.
Trump's push for U.S. energy independence could have significant implications for Canadian energy-exporting provinces. Given the geopolitical sensitivity around energy and energy policy will undoubtedly have ripple effects across the globe and will continue to make Canada a massively important market.
There's an increased focus on securing supply chains for strategic resources, particularly critical minerals. While this could present opportunities for some Canadian provinces rich in these resources, it may also lead to policies aimed at reducing reliance on foreign sources. Securing supply chains might become a strategic priority, with provinces needing to balance opportunity and risk.
Trump's skepticism towards climate change agreements and environmental regulations could lead to a significant divergence in climate policies between the U.S. and Canada. This could have implications for carbon pricing, renewable energy initiatives, and industries affected by environmental regulations. Provincial leaders might need to navigate a landscape of divergent environmental policies, balancing domestic and international pressures.
Strategic Directions for Provincial Leaders
Provincial leaders should consider several strategic directions to fortify their economic defenses. Provinces need to strengthen their economic modeling capabilities to better predict trade impacts. This includes investing in advanced economic modeling and data analytics capabilities, developing real-time dashboards of economic interdependencies, and creating rapid response teams for unexpected policy pivots.
Provinces will also need to rebuild from scratch their map of key influencers in Washington under a second Trump presidency. This entails overhauling government relations approaches and conducting thorough assessments at the federal and state levels to identify friends and foes. By firmly entrenching itself within U.S. political dynamics, Canada can strive for a Northern North America First approach rather than merely an America First outcome. Provinces should develop strategies for enhanced engagement with U.S. state governments, foster relationships between provincial and U.S. industry associations, establish channels for sharing economic impact data with U.S. stakeholders, and consider expanding provincial trade offices in key U.S. regions.
Having a dedicated team ready to address trade issues could mitigate potential negative impacts. Provinces should establish dedicated teams with trade law expertise, develop detailed playbooks for responding to potential trade actions, create rapid communication protocols with affected industries, and invest in public communications capabilities for trade issues. The ability to quickly respond to U.S. policy shifts can be crucial.
The bottom line is that the US will remain Canada's largest trading partner for the foreseeable future. No short-term political changes should distract any jurisdiction from promoting their core value proposition to targeted sectors and influencers. In international economic development, the foundation of your FDI strategy is built on strong business relationships, which should be continuously cultivated and not swayed by the actions of temporary political figures.
Hold Steady!
We often say to our government clients that ‘long term thinking in international economic development is in short supply.’
However, in times of uncertainty, jurisdictions with well-established business relationships built through years of FDI work excel. Their long-term efforts across various presidential administrations allow them to anticipate what their potential investors are thinking.
As Canadian provinces face the possibility of a second Trump presidency, proactive preparation can mitigate risks and potentially uncover new opportunities. By enhancing economic intelligence capabilities, diversifying trade relationships, strengthening cross-border alliances, preparing for rapid responses to trade disputes and strengthening interprovincial cooperation, provinces can position themselves to navigate potential economic challenges.
The key to success will be flexibility, foresight, and a willingness to adapt quickly to changing circumstances. By beginning these preparations now, provincial leaders can ensure they're ready to protect and advance their economic interests, regardless of the outcome of the U.S. election. While the political winds may be unpredictable, a solid strategy can keep the ship steady, regardless of the storm.