Economics professor expects Trump term to have major impact on Canada

Moshe Lander, Concordia University Economics Professor, speaks with Alberta Primetime host Michael Higgins about the impact a second Trump term could have on Alberta and Canada.

This interview has been edited for clarity and length.

Michael Higgins: Let's start on that element of putting Canada first, positioning shared by both Premier Smith and Ontario's Doug Ford.

What do you make of the rationale for carving out a bilateral agreement?

Moshe Lander: I totally understand the idea of putting Canada first, but I think that the way that they're offering to do it is exactly the opposite of what should be done.

It's not that you should be trying to dump your trade partners, it's that you should be trying to find more trade partners. If the real fear is that the American government is going to start putting tariffs on us again, then what you want to do is try and diversify so that you're not as reliant on the US economy.

I know it's hard to do because we have that long, undefended border between the two countries, but there's nothing to say that we can't be pursuing free trade arrangements with as many countries as possible, and that allows for diversification. That's usually a good strategy.

MH: If we look specifically at the U.S., what are likely to be the trade offs in negotiating our way out of Trump's anticipated tariffs?

ML: I don't know if necessarily there is a trade off that he's looking for here, other than maybe jettisoning Mexico and getting Canada on board with that idea. Where that idea originated from maybe is not from the premier's office in Ontario or Alberta. There's probably going to be some sort of understanding that the oil and gas sector is going to be extremely important, the president has said that it's drill baby, drill.

Whether he wants to rip up a lot of environmental regulations and look towards Canadian oil, that might be part of it. Might be trying to restrict the amount of goods that we sell to them and increase the amount of goods that we buy from them.

The one thing that Trump has been consistent on for 40 years, even before he entered into politics, was that he doesn't like free trade, and so it could just be that he just flat out does not like this agreement in any way, and might look to not just jettison Mexico, but us as well.

MH: What is the impact in the short term of all the uncertainty right now surrounding anticipation of those tariffs?

ML: If you're Canadian businesses, at this point, then you have to wonder if it's maybe time to start looking at moving into the U.S.

This is essentially what happened back in the 1980s when the U.S. was afraid of Japan and they were talking about putting tariffs on the Japanese products. The Japanese companies just said, ‘well we're just going to come inside and build factories inside the U.S.’

So the just-in-time manufacturing system that essentially put to rest the U.S. style of auto making was partly a response to, ‘how do we get around these tariffs and these trade threats?’

If Canadian businesses decide that they want to up and leave and move into the U.S. not only does it eliminate the threat of tariffs, but it also solves the problem of the falling Canadian dollar.

MH: Let's use that as a transition and talk about the falling Canadian dollar. While it's had a bit of a bounce back this week, the Loonie certainly had a four-year low last week.

What's driving the fluctuations and how much of the Trump election victory plays into that picture?

ML: I know that people want to make it a Trump issue why the Canadian dollar is falling. In fact, it's the disconnect between the Bank of Canada and the federal central bank. Normally they move in lockstep with each other, not because they have to, but because the economies are so intertwined that usually what's good for us is good for them and vice versa.

In this particular case, we tamed inflation much earlier than the U.S. did and so that gave us scope much earlier to start cutting interest rates but if you're an investor and you're looking at putting your money into low-yielding Canadian bonds or higher-yielding American bonds, the American bonds are going to be more desirable.

That means there's more demand for U.S. currency, less demand for Canadian currency, and the value of the Canadian dollar then falls as a result.

MH: How worrisome a development is this where the Canadian, and maybe more specifically the Alberta economy, are concerned?

ML: We always like to say that a weak Canadian dollar is good for exports, that's true, that hasn't changed. I think the risk right now though, is that if the Canadian dollar falls too much it could actually be a source of inflation.

Americans are going to look towards Canada now and say, ‘there's some great deals to have’, but that's another source of demand into the local economy given that we have so many supply chain issues between strikes with port workers, pilots, and other key services like Canada Post.

This is the type of thing that if a supply can't keep pace with demand, then that extra source of demand could be inflationary, and heaven help us the Bank of Canada might actually start talking about increasing interest rates to keep inflation under control.

That's the real risk at this point, of that disconnect, but the dollar goes up, the dollar goes down. It happens all the time. I think businesses are usually pretty familiar with that.

MH: We found out today Canada's inflation rate jumped back to 2-per cent in October, and maybe more importantly of note, Alberta's annual inflation rate is now the highest in the country at 3-per cent.

Are there signals to be taken from that, especially where our province is concerned?

ML: As long as inflation is between 1 and 3-per cent, we’re good. And among the provinces somebody has to be the highest, and so it's Alberta's turn to be the highest.

As long as the province has flexibility within its businesses, as long as it's adaptable, this will come and go as well. This is a blip. Nobody said that keeping inflation under control was a smooth, linear process, and this is just one of those things, that it happens to go up.

The issue is that if the prices are rising faster in Alberta than the rest of Canada, that means that our purchasing power is eroding faster than the rest of Canada as well. The risk there then is, ‘do we have the productivity gains to recover that through wage increases and keeping pace with inflation?’

If we don't have those productivity gains then it could mean a lower standard of living for Albertans before the rest of Canada suffers.

MH: If we bring it back to the changing political dynamics south of the border, what are your expectations for the Canadian economy for the next four years that Donald Trump will be in the White House?

ML: Hold on tight, it's going to be a bumpy ride. We survived the first four years of his presidency, the second four years are probably going to be a little wilder, but at least we have a playbook to draw from and so that should give us a little bit of comfort as well.

During the first presidency we said we'll be able to survive this, the institutions are strong enough to survive this, there will be somebody coming after him. Hopefully we can take that same sort of view this time around and we'll just endure.

The Canadian economy is pretty resilient and I think with a new government probably coming federally, that might also change some of the tenor between the president and the prime minister, it wasn't particularly great the first time around.