How the U.S. midterm elections could shake up Canadian business: Don Pittis

Canadians who thought political and economic turmoil south of the border had reached a peak may be in for a surprise after tomorrow's midterm elections.

Until all the votes are counted, no one can be sure where the chips will fall, but there is increasing evidence that President Donald Trump's Republican Party could lose control of the House of Representatives.

Anti-Trump Canadians may be breathinga sigh of relief at the prospect, but some Canadian policy experts say a Democratic win is not necessarily better for the Canadian economy or Canadian business.

And even if the Republicans manage to hold on to both the House and the Senate, the increasing clash of ideologies stoked by the bitter campaign could create lasting divisions that will continue to plagueCanada-U.S. economic relations.

Clashing ideologies

Those who find the current election processconfusing would do well to read CBC Washington correspondent Matt Kwong's"primer on why November's elections matter."

But the shorter version is that in an already fractured U.S. political system, there is a good chancethe body that passes the laws the House of Representatives will flipfrom Republican to Democratic Party control and thusbe in direct opposition to Trump's executive branch, which runsthe country and enforces the laws.

If that outcome actually materializes, with the Democrats in control of the House and the Republicans the Senate, historian and former Canadian trade negotiator Michael Hart says there would be little chance of compromise between the two bodies.

"In earlier days, until about the 1980s, it was possible for Democrats and Republicans to form a coalition and pass legislation," says Hart, Carleton University's former Simon ReismanChair in trade policy and author ofA Trading Nation: Canadian Trade Policy from Colonialism to Globalization.

No centrist left

He says we should expect another budget impasse, and with a swollen deficit and the prospect of social service cuts to balance the accounts, there will be little room for coaxing centrist Democrats onsidewith new costly initiatives, includingthe mooted middle class tax cuts.

In an integrated North American economy, not knowing whether U.S. spending is on or offcan make a big difference to Canadian suppliers, too. U.S. spending and borrowing policy affects bond rates andthe value of the dollar.

"There may be centrist legislators left but they dare not admit it," says Hart, who believes Democrats are raring for a fight.

"If Congress does go Democratic and they select Nancy Pelosi again, you have someone who," Hart pauses,"lacks wisdom, let's put it that way."

Democratic supporters would no doubt beg to differ,but the discord that Hart predicts could spell the end of not only any future pro-Trump legislation, but also the end of the new U.S-Mexico-Canada trade agreement (USMCA)that Foreign Affairs MinisterChrystia Freelandhasbeen struggling over since Trump threatened to throw out the North America Free Trade Agreement.

"Now that we have this replacement agreement, it's not a sure thing it will pass through Congress," Hart says.

Besides the possibilityanti-Trump DemocratsseeUSMCAas the president's baby, Hart says the new deal is actually more restrictive on trade than NAFTA.

Oddly enough, the effect of rejecting USMCA would be to keepNAFTA in place. But University of Saskatchewan public policy expert Daniel Bland, who has worked and studied in the U.S., says that ostensible trade continuity may be of little reassurance to businessif it merelyraises the ire of Trump and his supporters.

He says the inflamed rhetoric of the campaign is pullingthe two sides into more radical opposition, adding to the business uncertainty of where the U.S. goes next.

"It's really a division that's not just political anymore," saysBland, Canada Research Chair in public policy. "You watch MSNBC and Fox News and you think you live on two different planets."

He is worried thatgrowing angerover issues such as immigration and trade could exacerbatethe kind of violence we have already seen, as each side speaks exclusivelyto its own supporters, leading to yet greater uncertainty. In the case of Trump, unlike in the campaign that elected him, he does not have Hillary Clinton as a focus for his attacks.

"His foe is quite abstract," Bland says. "It's liberals or immigrants or specific target groups."

And with a Democrat-controlled House, frustration could push more zealousTrump devotees into greater extremism against their adversaries,real or imagined.

Oil and gas backlash

Another area where Canadian business interests could sufferis on environmental issues, saysBessmaMomani, a specialist in financial and foreign policy at Waterloo'sBalsillieSchool of International Affairs.

Appealing to a more environmentally conscious, urban electorate, a Democratic House could lead to a backlash against Canadian oil and gas projects,including the oilsands and pipelinessuch as Keystone, which arenecessary to get Canadian oil to market.

"I think there's a risk there," Momanisays.

Of course, for many Canadians, increased environmentalism, including support on climate change and automobile fuel-efficiency standards, would be seen not as a risk but a benefit.

A less controversial positive outcome for Canada isthat a Democratic majority could help defusethe U.S.'s growing trade conflict with China, which Bank of Canada governor Stephen Polozhas called one of the biggest risks to the Canadian economy.

Momanialso says that increased Democratic power could mean Canada and the U.S. could move ahead on what's called the "gender dividend," where increasing the percentage of women in businesses is calculated to increase revenue by more than three per cent and boost an economy struggling from a shortage of talent.

She says the president's daughter,IvankaTrump, has been pushing the gender issue in the U.S. but has had little backing from theRepublican administration or Congress.

"There might even be, dare I say, bipartisan support."

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