Written by Geoff Norquay, with contributions from Elly Alboim and Bud Locklear.
Americans go to the polls on Tuesday, November 5, 2024. While much attention is focused on the battle between Donald Trump and Kamala Harris for the presidency, 33 of the 100 seats in the U.S. Senate will also be contested, and all 435 seats in the House of Representatives are in play in November.
Regardless of who wins the presidency, control of both houses of Congress will be critical to the new president’s success in getting budgets and major legislation through to approval:
- In the Senate, the current party division is 50 Republicans, 48 Democrats, and 2 Independents (who caucus with the Democrats). Democrats hold the majority due to the tie-breaking vote of Vice President Harris.
- In the House of Representatives, the Republicans currently hold 220 seats, while the Democrats have 212 seats, and there are three vacancies.
Policy in the presidential election
Canadians are familiar with the way our political parties approach policy in national elections. Each party tables a comprehensive policy platform at some point in the campaign and these are independently and objectively analysed and costed by the Parliamentary Budget Office. In Canada, party platforms are influential in shaping the policy debates that take place among leaders and candidates throughout the campaign.
The two American parties take a different approach to policy that is much less focused and rigorous. This is partly because in the U.S. congressional system, presidential candidates are only nominally the leaders of their parties. House representatives and senators feel free to take issue with the policy pronouncements of presidential candidates.
For example, as Donald Trump has struggled recently with abortion, he has received pointed criticism on his shifting positions from senior elected Republicans in the House of Representatives and Senate.
By contrast, policy in a Canadian election is much more unified because in our Westminster parliamentary system, the election will produce a cohesive team of MPs led by a permanent leader who will form a government backed by Cabinet solidarity and the confidence conventions of the House of Commons. Finally, because the U.S. president governs with the “advice and consent” of Congress, the ultimate disposition of policy promises – and crucially important – the disposition of budget appropriations – is held hostage to which party holds a majority in the House of Representatives and the Senate.
There are additional personal and policy dynamics at play in the current U.S. presidential election that have served to push policy to the back burner. The mid-summer withdrawal of Joe Biden from the Democratic Party nomination and the ascension of Kamala Harris has clearly destabilized the Trump/Vance campaign.
Donald Trump was hoping for a contest with Biden, who he was leading by the early summer. With Harris now the candidate, Trump and his running-mate, J. D. Vance, have continued their ad hominem personal attacks on Harris and Tim Walz, the Democrats’ vice-presidential candidate. This has resulted in increasingly desperate public appeals from moderate Republican leaders for Trump and Vance back off the personal attacks in favour of a renewed focus on policy.
Trump has also distanced himself from Project 2025, a political initiative published by the Heritage Foundation that aims to promote conservative and right-wing policies to reshape the United States federal government and consolidate executive power if Trump should win the 2024 November election. Many contributors to the 900+ page report were associated with the Trump Administration or are with his current campaign. The radical nature of the project’s proposals means it will figure prominently in the current campaign, providing numerous points of attack from Harris and the Democrats.
For her part, Kamala Harris has her own reasons for keeping her distance from policy issues. Due to her late entry into the race, she faced an urgent need to introduce herself to the country in personal terms, and the Democrats’ August convention accomplished that objective admirably. Harris also faces the need to distance herself from some positions she took when contesting the Democratic primaries against Biden in 2019. She made a solid start in her TV interview with CNN’s Dana Bash on August 29. To date she has advanced some policies – a federal ban on price-gouging, tax breaks for low income families, expansion of the child tax credit, construction of 3 million houses and a tax incentive for homebuilders – but has faced calls to be more specific.
On the other hand, Democratic Party strategists argue that coming out of their convention, the presidential race is about values, so Harris and Walz do not need to go deep into the details on policy. As one Democratic advisor recently put it, “They need to be very smart and deliberate about talking specifically about policy ideas that address voters’ top concerns, whether that’s bringing down the cost of housing, cost of groceries, fixing the tax system so it works for everyday working people, and keeping healthcare affordable.”
The big picture: the bilateral trade relationship
By far the most important bilateral issue between Canada and the United States is their trade relationship, which is extensive, mutually beneficial and significantly integrated between the two countries:
- Canada and the U.S. are each other’s largest trading partners; in 2023, nearly $3.6 billion in goods and services crossed the border each day.
- Canada is the top U.S. partner for trade in goods and services. In 2023, Canada exported 78% of its goods to the United States, and imported almost half of its goods from the U.S.
- In 2023, the top three Canadian exports to the U.S. were energy ($128 billion), motor vehicles ($52 billion) and machinery ($34 billion).
- In 2021, direct investment from the United States in Canada was $500.7 billion, accounting for nearly half (46.9%) of the total direct investment in Canada. Canada’s direct investment position in the United States was $744.9 billion, or 47.9% of its total direct investment abroad.
- “Almost 400,000 people cross the U.S.-Canada border every day.”
It is important to recognize that both the Republicans and the Democrats are united in their devotion to economic protectionism and intervention in the economy as a means of managing the trade file. The differences between the two parties are more in the way they pursue and implement this protectionist policy preference.
The Republicans and Donald Trump
As was seen during the Trump administration (2017-21), his approach was to use tariffs as his principal tool for managing trade. One of the most difficult periods in the two-way relationship occurred when Trump levied a 25 per cent tariff on steel and a 10 per cent tariff on aluminium imports on May 1, 2018, on the spurious grounds that those imports constituted a “national security” threat to the U.S. In a tweet the next day, Trump asserted, “Trade wars are good, and easy to win.”
In retaliation, Canada immediately imposed tariffs of up to $16.6 billion on steel, aluminium and hundreds of other products from the United States. A year later, on May 17, 2019, Canada and the U.S. reached an agreement that ended their tariffs, as part of a deal to remove irritants that stood in the way of ratifying the newly negotiated NAFTA agreement.
In the current election, Trump has proposed a 10 per cent across the board tariff on all imports to the U.S. to protect American jobs. Since Canada exported 78 per cent of its goods to the United States last year, the impacts of such a move would be significant, and the U.S. tariff would likely be reciprocated by Canada, adding to consumer costs on both sides of the border.
The Democrats
The Democrats’ specific form of protectionism features massive public spending combined with regulation to further their trade and environmental objectives. In 2022, through the Inflation Reduction Act (IRA), the Biden Administration unleashed $369 billion USD dedicated to subsidies – direct investments and tax credits – to businesses and consumers to foster clean growth and to encourage the adoption of electric vehicles (EVs), representing what several observers have called “the single largest investment into climate and clean energy in history.”
Biden’s use of these huge spending and regulatory tools in pursuit of environmental policy had momentous impacts on America’s trading partners, especially Canada. Finance Minister Chrystia Freeland’s Budget 2023 acknowledged that the IRA’s “… ‘Buy North American’ policy stands to benefit both Canada and the United States.” It also recognized the following challenge: “without swift action, the sheer scale of U.S. incentives will undermine Canada’s ability to attract the investments needed to establish Canada as a leader in the growing and highly competitive global clean economy.”
As a result, Budget 2023 sought to “level the playing field” between the two countries by offering a multi-year investment plan worth an estimated $80 billion in targeted spending and tax measures for green financing, green electricity, green manufacturing, hydrogen development, securing major auto battery manufacturing in Canada and pursuing the exploration for and development of critical minerals.
Canadian Investments in the Electric Vehicle (EV) Supply Chain
Canada identified the need to support the development of the EV supply chain prior to the American IRA initiatives, but Budget 2023 gave added impetus to these investments. The Parliamentary Budget Officer estimates that between October 8, 2020 and April 25, 2024, Canada attracted more than $46 billion in investments across the EV supply chain. Federal government support for these investments has totalled $31.4 billion (60 per cent) and provincial support has totalled $21.1 billion (40 per cent). The vast majority of these investments have come since 2023 in direct response to the IRA.
Additional issues and irritants
Canadian defence spending
In 2014, NATO Heads of State and Government agreed to commit two per cent of their national Gross Domestic Product (GDP) to defence spending, to help ensure the Alliance’s continued military readiness. The war in Ukraine has highlighted the importance of NATO to the collective defence of its members and Canada’s anemic record on defence spending, which stands at 1.4 per cent of its GDP. Canada is one of only eight NATO members that are not spending to the two per cent target.
In recent years, Canada’s NATO partners have become increasingly critical of Canada’s level of defence spending. These calls for more spending have been echoed by both U.S. political parties. This past May, a bipartisan group of U.S. senators wrote to Prime Minister Trudeau to urge him to increase defense spending further, and in July, U.S. House Speaker Mike Johnson accused Canada of “riding on America’s coattails.” On July 11, Canada finally announced that it will increase defense spending to the NATO target of two per cent of gross domestic product by 2032, making a commitment for the first time on a date when the government would meet the goal.
That target date is still eight years away, and it likely will not be good enough for Donald Trump if he should win back the presidency this coming November. In February this year, he famously said he would encourage Russia to do “whatever the hell they want” to any NATO member country that doesn’t meet spending guidelines on defense. Trump’s words directly challenge Article 5 of NATO’s treaty and its promise of collective defense: that an attack on one member nation is an attack on all the nations in the alliance. His comments are his most direct indication he does not intend to defend NATO allies from Russian attack if he is re-elected.
Energy and the environment
As noted above, through the Inflation Reduction Act, the Biden Administration has invested heavily in clean energy and EVs, but Donald Trump has promised to undo all of those initiatives. Trump is committed to returning the United States to fossil fuel dominance. Under the mantra of “Drill, baby drill,” he has promised to ramp up drilling on public lands, to bring in tax breaks for oil, gas and coal producers and scale back Biden’s renewable energy policies. Trump would “end the electric vehicle mandate on day 1,” and reverse Biden proposals to bring in “strict new automobile pollution limits … that would require at least 54% of new vehicles sold in the U.S. to be electric by 2030 and as many as two of every three by 2032.”
As the Brookings Institute has pointed out, “Many of these goals would require actions by Congress, whose composition is up in the air until the election.” If Trump wins the presidency and is successful in significantly increasing American oil and gas production, Canada’s share of the U.S. market will drop precipitously. Our energy exports to the U.S. are our biggest source of export revenue and underpin the Canadian dollar.
Renegotiation of the Canada-US-Mexico Agreement (CUSMA)
July 1, 2026, marks the start of the mandated review of CUSMA, the successor to NAFTA negotiated between the Trump Administration and Canada, and which came into force on July 1, 2020. The joint review, which is unique among trade agreements, requires all parties to commit in writing that they want the agreement to continue. If any of the three countries do not make this commitment, there will be annual reviews until the agreement expires in 2036, or until all three parties agree to extend it for another 16 years.
As Steve Verheul, Canada’s lead official in the CUSMA negotiations told the House of Commons Standing Committee on International Trade on June 4, 2024 (see p. 4-5), “The only reason the review clause is in the agreement is that the U.S. wanted to build in leverage for it to seek changes to the agreement on an ongoing basis, but this undermines confidence in the agreement and introduces ongoing uncertainties.”
He noted that already, U.S. officials have indicated they want to revisit such issues as the dispute resolution panel decision the U.S. lost on automotive rules of origin, the broader future of dispute settlement panels and the U.S. perennial favourite, dairy issues.
Canada’s Digital Services Tax
Over the past decade, the Organisation for Economic Co-operation and Development (OECD) has been working with its members to reach a consensus on how to address tax base erosion and profit shifting of multinational digital enterprises. In the interim, several countries, including France, Austria, Spain, Italy and the United Kingdom, unilaterally enacted domestic digital services taxes (DSTs) aimed at taxing certain services performed by large companies and consolidated corporate groups that meet specified revenue thresholds.
After the OECD announced in 2023 an additional one-year standstill on imposing any new DST legislation, Deputy Prime Minister and Minister of Finance Chrystia Freeland announced on July 18, 2023, Canada would proceed with its own DST and it did so through Bill C-59. After its passage by the House and Senate, the Bill took effect on June 28, 2024. The notional date for submitting the tax is as of January 1 of this year. To date, no companies have submitted the tax to the government.
The new DST targets online marketplace services revenue, online advertising services revenue, social media services revenue and user data revenue that is earned in Canada. Digital firms that have global annual income of at least $1.1 billion will see annual revenues in Canada over $20 million taxed at a rate of three per cent. The tax is retroactive to January 1, 2022. Budget 2024 forecast revenues from the tax at $5.9 billion over five years, starting in 2024-25.
As early as 2022, the Office of the United States Trade Representative (USTR) warned Canada against bringing in the DST. In a statement on February 22, 2022, USTR said, “Should Canada adopt a DST, USTR would examine all options, including under our trade agreements and domestic statutes.” In addition, U.S. based multinational digital services companies and several American and Canadian business associations have all warned Canada against proceeding with the tax.
On August 30, 2024, the U.S. formally requested dispute settlement consultations with Canada under CUSMA, with the U.S. Trade Representative, Katherine Tai saying, “The United States opposes unilateral digital services taxes that discriminate against U.S. companies.” If the two countries cannot resolve American concerns within 75 days, the U.S. is almost certain to request a dispute settlement panel to examine the issue.
The Online News Act
The regulations to implement the Act took effect in mid-December of 2023 and allow Canadian news outlets to bargain with major digital platforms – Google and Meta – for payments for their use of Canadian news content that they have generated. The purpose of the Act is to ensure that these dominant platforms compensate news businesses when their content is made available on their services.
In late November of 2023, the federal government reached an agreement with Google by which the company will comply with the legislation and contribute $100 million per year to be divided up among Canadian publishers and broadcasters. Aware of the international precedent the Online News Act would set, Meta has blocked access to Canadian news on its platforms such as Facebook and refused to make contributions under the Act. Some members of the U.S. Congress have expressed concerns that the Online News Act may unfairly target U.S. companies and that it may violate CUSMA.
The Online Streaming Act
Canada’s Broadcast Act has long required television and radio companies operating in Canada to fund and broadcast a certain percentage of Canadian content. The Online Streaming Act took effect on April 27, 2023, and will require social media broadcasters to meet similar commitments. The Act also empowers the Canadian Radio-Television and Telecommunications Commission (CRTC) to regulate entities that broadcast through social media in the same fashion.
The CRTC has targeted “late 2025” to produce and implement a new regulatory framework for Canadian content requirements. Draft regulations released in June 2024, would require online streaming services with annual revenues of $25 million to contribute towards or directly fund Canadian content. Some U.S. industry groups have complained that the Act is discriminatory towards foreign firms.
Border issues
While the U.S. border with Mexico has long been a policy flashpoint in American politics, security at Canada’s border has been quietly emerging as an issue recently. In early 2023, a group of 28 house Republicans formed the Northern Border Security Caucus, citing national security concerns about illegal crossings – many the result of human smuggling – into the United States from Canada.
They appear to have a point: U.S. Customs and Border Protection (CBP) reported that 2023 saw 189,000 northern land border “encounters,” with illegal immigrants, many of whom were carrying drugs, guns and ammunition. These numbers represented a 597 per cent increase from 2021. In addition, CBP reported that in 2023, 85 per cent of all land border encounters with individuals on the U.S. terrorist watchlist occurred on the border with Canada.
It does not require a huge amount of thought to imagine how a re-elected Donald Trump could use these statistics to hammer Canada and demand the tightening of our border management.
Canadian preparations for the election outcome
There is no doubt that Donald Trump’s surprise election victory in 2016 destabilized the Trudeau government, “which spent the next four years on war footing with its largest trading partner.” This time, Canada is determined not to be caught unprepared.
According to Politico, a year ago, with Trump again heading towards being the Republican nominee, Canada’s Washington embassy began mapping every political and business relationship they had in each U.S. state. The result was a revised Team Canada plan headed by Canadian Ambassador Kirsten Hillman, Innovation, Science and Industry Minister Francois-Philippe Champagne and International Trade Minister Mary Ng to “court ‘influencer’ lawmakers and business leaders, especially in places historically ambivalent about Canada — states such as Texas, Arkansas, Louisiana, Mississippi and Florida.”
The Canadian outreach plan is strongly supported by the Prime Minister’s Office as well as by Cabinet. Ambassador Hillman has become a regular participant at the fall and winter Cabinet retreats. As the U.S. election approaches, the logical next step is for Canada to broaden its U.S. outreach to include Canadian business representatives.
Finally, at the most recent Cabinet retreat in Halifax, the Biden Administration took the unprecedented step of sending the president’s National Security Advisor, Jake Sullivan, to brief ministers personally. Presumably, Sullivan came with a detailed list of warnings and asks for Canada to address the bilateral issues between the two countries.
