The Trump Victory

The Top Line

Donald J. Trump won an overwhelming victory in last night’s U.S. election.  Not only did the Republicans win the electoral college vote decisively, Trump’s coat-tails pulled along several marginal Republican Senators which has resulted in his Party having control of the White House, the Senate and the House of Representatives.

Trump arrives in the Presidency with remarkably few debts to any politicians or donors.  The extent of his potential power is approximated in recent times only by Ronald Reagan’s second term victory in 1984 (although even when Reagan swept 49 of 50 states the Democrats retained control of the House).

How will he use it? 

Let us start by stating the obvious.  This is a novice politician who has been under-estimated since his campaign kicked-off 18 months ago at Trump Tower in New York.  Given the above, it would be foolish to under-estimate the degree to which he has thought through the way forward.

Watch for the following:

  1. His staff: Will he put in place the kind of experienced, professional managers who will be able to drive forward a complex change agenda that will be watched very closely by millions of voters that he has effectively “rented” with his rhetoric.  His campaign staff – campaign manager Kellyanne Conway notwithstanding – are outsiders with insufficient experience to run Washington.  His choice of Chief of Staff will say much about how he will manage.
  1. His Vice President: Will the steady and experienced Mike Pence become the de-facto Chief Operating Officer as many might hope?
  1. His Cabinet: Watch for how Trump tries to balance diversity with management and political experience.   Those who know him expect him to manage as a corporate CEO, naming strong individuals and giving them clear mandates.  Experience will be essential.  Remember that the District of Columbia and the Virginia suburbs of the capital – home to most of the federal bureaucracy – voted en masse for the Democrats.
  1. The Congressional leadership: Will the President-elect back the current Republican leaders in the House and Senate, or will he let the right-wing drag down House Speaker Paul Ryan in retribution for his absence from the national campaign? Ryan is a potential political challenger – it is hard to imagine that a close ally of the new President will not take over the role of Speaker and de-facto leader of the House Republican Majority.
  1. Hillary Clinton: Many in the President-elect’s entourage subscribe to the view that the Clinton Foundation has made multiple serious legal errors and that investigation is required. Any willingness by Trump to aggressively pursue a public investigation risks bogging down Congress for months.  It is anyone’s guess which direction he will go given that his Campaign Chair funded the research into the Foundation’s investigation that resulted in the book Clinton Cash.
  1. Foreign leaders: Who will he meet with prior to the January 20 inauguration, and how will he treat them?  He has made it clear that his mandate is to put America First.  So, who’s second and third?  Everyone from the Presidents of Russia and Mexico to the Prime Minister of the U.K. will be lining up.  Given Prime Minister Trudeau’s strong personal relationship with President Obama, the Canadian pivot will need to be careful and swift. To their credit, Canadian cabinet ministers who might otherwise have wished to speak to the qualities of Hillary Clinton and her policies remained silent during the long U.S. campaign, even when it appeared Clinton would be the sure winner.

For Canada, we suggest you watch the following items for clues on how this new Administration will operate:

  1. Who fills the role of Secretary of State? A strong Secretary with some knowledge of Canada will greatly help relieve Canadian concerns that its issues will not have a welcome home in the new Washington.
  1. NAFTA and Trade: Trump said virtually nothing about Canada during the campaign – but a lot about NAFTA and Mexico. Canada will want to assure the new administration that its own segments of trade are working fairly for both partners.  How and if NAFTA is renegotiated is likely now the single biggest issue for Canada’s business sector – with the most extreme scenario being a complete American rejection of the agreement.  Meanwhile, the Trans-Pacific Partnership is on life-support as of today (to China’s delight).
  1. Environment and Energy Policy: We expect radical changes to the U.S. positions on climate change and fossil fuels.  Canada and the U.S. will likely now have fundamentally different positions on clime change and carbon policy.  That dynamic may impact Canada’s Federal-Provincial negotiations about putting a price on carbon – provincial governments that are opposed to or ambivalent about a carbon price may now feel emboldened.  However, Canada will want to see the U.S. quickly issue final permits for major pipelines moving Alberta oil south of the border.
  1. NATO: Trump wants Europe – and Canada – to meet their defence spending commitments, or else. If he pushes hard, it will cost NATO countries billions in spending that will have to come from other programs.  No wonder defence stocks are jumping higher today on the stock exchanges.
  1. Economy: Trump has promised to revitalize the U.S. economy. How that will happen, and the impact on fiscal policy, monetary policy and national currencies will have an impact across the globe.  If the President-elect is able to move American GDP growth from under 2% to 3% or more, the single largest beneficiary will be Canada.

Business Competitiveness: The President-elect has promised to overhaul business regulations and drop the corporate tax rate to 15%.  Assuming he does, pressures will mount in Canada for the federal government to ensure that Canada maintains an attractive investment environment.  We can assume that the Regulatory Cooperation Council between Canada and the U.S. is essentially moribund with the Trump victory.

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