President-elect Joe Biden and Canadian Manufacturing

Donald Trump’s presidency brought many changes to Canada-US relations. The longstanding polite and civil discourses on both sides of the 49th parallel were punctuated with episodes of heightened hostility, political instability and the need for more arduous deal-making. The overhaul of The North American Free Trade Agreement (NAFTA) and the discord between both countries’ leaders during the 2018 G7 Summit were bones of contention. These conflicts were due in part by increased American protectionism of various industries in the manufacturing sector. Newly elected Joe Biden has promised to have a different perspective on international trade relations than his predecessor, with a new focus on fair immigration, energy transition and less belligerent diplomacy. This will most likely directly affect the Canadian manufacturing sector both negatively and positively.

Attracting a skilled workforce

During his tenure as President, Donald Trump limited the number of skilled-worker visas that could be obtained by foreign professionals in the US. For this reason, many of these workers sought employment in Canada, a close second for many. Canadian companies benefited from this influx of demand for Canadian jobs by being able to choose from a bigger pool of applicants. Skilled workers are in high demand in Canada’s manufacturing industries. This is especially true for firms that get their competitive advantage from research and innovation, including those producing transportation, chemical, pharmaceutical and electronic products. Unfortunately for Canada, there is a strong chance Biden will rescind Trump’s visa policies, allowing foreign skilled workers to seek employment in the US rather than Canada. This could cause labour shortages in the manufacturing sector in Canada, making wages a bigger part of a company’s cost structure, which could, in turn, reduce Canadian firms’ competitive advantage.

Energy sector

Canada’s economy is fairly reliant on the performance of the oil and gas sector. After automobiles and light-duty motor vehicles, petroleum refining is the second most important category of manufacturing exports in Canada. One source of success for Canada’s energy sector has been its proximity to the American market, making the exportation of petroleum products efficient and profitable. Alberta, the largest producer of petroleum products out of all the provinces in Canada, depends on nearby demand to ensure its economic stability. Joe Biden has pledged to reduce the production, importation and consumption of fossil fuels, and to opt for greener alternatives in the future. Practically, this would mean the disuse of the Keystone XL pipeline, which connects Alberta to the Southern United States, as well as a decrease in the importation of fossil fuels from Canada. Because Canada’s energy sector is already in disarray due to lower oil prices worldwide, Joe Biden’s energy platform might be dealing a final blow to whatever hope Canadian fossil fuel enthusiasts still had. In turn, the manufacturing firms associated with producing consumable petroleum products would inevitably experience some form of economic vulnerability, which could result in downsizing and job loss.

More political stability

Donald Trump’s presidency was at best erratic when it came to international trade agreements and alliances. His trade policies involving Canada changed at the drop of a hat, such as his position on Canada’s dairy industry or the tariffs newly imposed on Canadian aluminum. Considering metal transformation and agribusiness are both two main sources of manufacturing production in Canada, these changes altered the cost structures of many manufacturing firms. The US was supposed to join the Trans-Pacific Partnership (TPP) with Canada, before ultimately withdrawing from the agreement following abrasive TPP criticism from the incumbent. Joe Biden is expected to be a stronger uniting force of world powers to enhance multinational trade, in stark contrast with the more isolationist platform voted for in 2016. Joining an effort such as the TPP is a step towards having a united front against China’s growing economic influence, and allowing homegrown companies to flourish. This is just one example of how the new president-elect will differ from his predecessor. His inauguration as President will act as a reset of sorts for United-States-Canada relations after four years of mounting commercial tension. One could argue that the increased political stability in the White House means more transborder economic stability. This has a direct impact on manufacturing firms in Canada since they will be able to better predict that new tariffs or policies won’t be enacted arbitrarily by the US government. Better risk management and more stable cost structures are correlated with higher profitability and growth.

Uncertain future

While Joe Biden’s first term in office may reduce the economic risk for Canadian manufacturing firms previously incurred by a Trump presidency, Canada may lose top tier international talent and a large export market for fossil fuels. Furthermore, if the US Senate is controlled by the Republicans, Biden may face difficulties when enacting policies that promote trade with Canada. That being said, relations between Canada and the United States will undoubtedly be more cordial, which could facilitate trade and beget growth for the manufacturing sector.

Originally pusblished on Medium.

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President-elect Joe Biden and Canadian Manufacturing