Many Canadians may not like American president-elect Donald Trump. But beneath the teeth gnashing are real opportunities for boosting the Canadian economy, writes Brian Lee Crowley.
By Brian Lee Crowley, Nov. 11, 2016
Repeat after me: President Donald Trump. That wasn’t so hard, was it? Like it or not, you’re going to be hearing that phrase a lot over the next four years and possibly a lot longer. So let’s move beyond the gnashing of teeth and start thinking about how Canada can turn the arrival of the new administration to its advantage.
Here are my top three suggestions.
First, embrace American pressure to increase defence spending.
The first call Prime Minister Justin Trudeau will get from the Trump White House will be to make clear that America expects its allies to carry more of the burden of defence spending. As firm believers in NATO and collective security, Canadians should also be prepared to accept their share of the bill, and President Trump will remind the prime minister that we spend roughly half of what NATO asks its allies to devote to defence, namely two percent of GDP.
Mealy mouthed equivocation about how we spend better than others and a different kind of calculation would make our current spending look better will cut no mustard. Even outgoing President Barack Obama publicly criticised Canada’s military miserliness, so expect no less from President Trump.
Let’s move beyond the gnashing of teeth and start thinking about how Canada can turn the arrival of the new administration to its advantage.
On the other hand Canada is already committed to deficit spending in an effort to raise the growth rate of the Canadian economy. The question therefore becomes ought we to divert some of that money to defence spending and away from “infrastructure?” The answer is an unequivocal yes. Military spending strongly underpins economic growth quite independently of whether it is justified by our treaty and other commitments.
On this I can cite no less an authority than Ben Bernanke, Chairman of the US Federal Reserve under two presidents.
It’s not just that the military spends a lot of money on buildings, equipment and civilian services, or that bases are often located in areas that might have difficulty attracting private industry, or that the military can often be a potent force for education, skills training and social mobility.
According to Bernanke, military spending has powerfully stimulated American innovation, research and development. The spillover into private sector innovation he has called “a major factor in U.S. growth.”
Yes, we would end up spending a lot on US military equipment but a thoughtful and strategically-minded Canadian government would know how to use its purchasing power to negotiate major benefits packages for Canadian industry, unleashing technology and management transfers while opening foreign markets to Canadian expertise.
That’s a far better bet than the billions Ottawa already plans to spend on “infrastructure,” the bulk of which is nothing of the sort, but just ill-disguised feel-good projects with no capacity to raise the productivity of the economy or the living standards of Canadians.
And never forget that Trump fancies himself a dealmaker. He wants higher defence spending? We want continued free trade with the US—and his quarrel has always been with Mexico, not Canada.
The second opportunity for Canada is the election of a president and Congress friendly to the Keystone XL pipeline. This happily coincides with a moment when Ottawa will almost certainly be facing major protests on the west coast opposing pipelines there.
You don’t have to love Donald Trump. But you do have to work with him. Inauguration Day is only two months away.
KXL would get a million barrels of our oil to tidewater (and therefore world prices) every day, its Canadian route is entirely within pipeline-friendly Alberta, and its construction would buy Ottawa some time to win Canadians over to a revamped energy infrastructure approval process. Mr Trudeau, in addition to his promises to reduce Canada’s carbon footprint, is also committed to getting Alberta’s oil to international markets. Here is his chance to do so at least political cost to himself. He should grab it by asking Mr Trump to issue the KXL permit Mr Obama had refused and to do so as one of his first acts as president. No one understands better than Mr Trudeau the thrill of the symbolic repudiation of your predecessor’s policies.
The third opportunity in the Trump presidency lies in business taxation. Our business taxation regime used to be one of the worst among industrialised countries but the reforms post 1997 brought us to the middle of the OECD pack, with commensurate benefits. Finishing the job by making it one of the most competitive regimes in the world, however, has been politically difficult.
If Donald Trump and the Republican Congress follow through on their promises and undertake serious efforts to reduce the corporate tax burden, however, it offers the political cover Ottawa needs to get the job done. Tax reform then does not involve fighting off charges of tax giveaways to multinationals, but instead keeping our taxes competitive with our neighbour’s. That’s a motivation Canadians can accept.
You don’t have to love Donald Trump. But you do have to work with him. Inauguration Day is only two months away.
Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.
