The head of the Trudeau government’s influential council of economic advisers recommends Ottawa stay agile, just in case Donald Trump delivers on vows that could have severe implications for Canada.
Dominic Barton, the global managing director of consulting firm McKinsey & Co., said in an interview that while it remains unclear what exactly the president-elect will do, he cautioned that Trump’s pledges on trade and taxation must be taken seriously in Canada.
“If something does happen … then I think we’re going to have to be ready to go back to the table … you think about budgets or you think about tax cuts,” said Barton, who, as chair of the economic growth council, has the ear of Finance Minister Bill Morneau.
“I’m hoping — I’m praying, if you would — that there won’t be any of that type of thing happening. But we’ve just got to be ready.”
Barton added that could mean responding, if necessary, outside of Canada’s annual budgetary cycle.
His warning comes amid widespread uncertainty over how the Canadian economy might fare if Trump were to fulfil some of his promises, which include a major reduction of the U.S. corporate tax rate and the creation of a border tax.
Even the growth council has been forced to reassess some of its forthcoming recommendations to the government following Trump’s victory, Barton said. The group of experts, chosen by Morneau’s office, is expected to release its next wave of proposals in the coming weeks.
Barton said the council discussed Trump at their December meeting and they will continue to watch developments in the U.S. as they make their own decisions.
“For sure, it’s something that we’re thinking about and we need to be agile, too,” Barton said.
For example, Barton said the council is exploring possible recommendations that will involve deepening the trade relationship with the U.S. as well as other countries.
Over the longer term, he said they are also looking at ways to attract more private capital to Canada. In developing capital-related suggestions, he added that the council may wait a few months to see what actually happens in the U.S. under the new administration.
The federal government has dispatched senior officials to meet members of Trump’s inner circle and highlight the importance of the Canada-U.S.. relationship, including the close business ties that bring benefits to both sides of the border.
In recent days, Prime Minister Justin Trudeau has offered reassuring words when asked about the potential changes from Canada’s top trading partner, calling the recent discussions with Trump’s team “constructive” and “positive.”
Barton said it’s crucial for Canadian and American businesses that depend on each other to make sure everyone knows about the significance of the partnership.
“We just can’t assume that people understand what the facts are,” said Barton, who added that restricting trade could hurt many Americans who reap huge benefits by dealing with Canada.
Morneau has suggested his upcoming federal budget, expected as early as February, will be prudent as the government prepares for the possible impacts of any Trump measures.
The finance minister was asked Friday if he would lower Canada’s corporate tax rate if Trump lived up to his promise to do so in the United States. Morneau replied that Canada already had a low corporate rate that was “very competitive” globally.
Some economists believe that certain Trump’s proposals could create benefits for the Canadian economy.
The Conference Board of Canada’s Craig Alexander has said Trump’s vows to significantly increase infrastructure investments, combined with corporate and personal tax cuts, could boost growth in the U.S. and indirectly help Canada.
But Alexander has also pointed to the many risks for Canada, such as Trump’s protectionist promises.
The National Bank recently published a research note that said Trump’s proposed 10% border adjustment tax on imports to the U.S. could cause total Canadian goods exports to its neighbour to drop by about 9%.
A report by the Montreal Economic Institute has warned that border tariffs could have “very harmful” consequences for automakers in Canada and the U.S. because after 50 years of trade liberalization, the countries’ auto industries are fully integrated.
On Friday, Trump spokesman Sean Spicer told reporters on a conference call that a border tax on autos would not be applied to any one country and could impact Canada, according to a Bloomberg News report.
“When a company that’s in the U.S. moves to a place, whether it’s Canada or Mexico, or any other country seeking to put U.S. workers at a disadvantage,” said Spicer, then Trump “is going to do everything he can to deter that.”