In a remarkable political comeback, Donald Trump won the U.S. presidential election on November 5 and will return to the White House for a second term of office in January 2025. Trump bested the Democratic Party’s Kamala Harris by just over three million popular votes, and as of November 8, had won 295 votes in the Electoral College, well in excess of the 270 necessary to secure the presidency (both Arizona and Nevada, totalling an additional 17 electoral college votes, have yet to be declared but are expected to be awarded to Trump).
The former President carried the swing states of North Carolina, Georgia, Wisconsin, Michigan, and Pennsylvania. He holds leads in Nevada and Arizona. Trump’s margin of victory in each of these states varied from 1% to 4%, suggesting that pollsters were not wrong in predicting a close race.
Donald Trump and the Republican secured roughly the same number of total votes – 75 million – as was the case in the 2020 Presidential election. By contrast, the Democratic vote total fell over this same period from over 80 million to less than 70 million (with some votes still to be counted). As a result, Trump improved his margins in over 90% of counties across all 50 states.
Despite serious concerns around whether the results of the election might be contested, the definitive nature of the vote should serve to address lingering concerns about the validity of the electoral process and smooth the transition to a new administration, with eleven weeks remaining prior to President Trump’s second inauguration. The announced appointment of Trump’s campaign manager, Susie Wiles, to the position of Chief of Staff to the President is an indication that the transition process is already unfolding.
Of chief concern to many observers is the question of whether President Trump might seek to exceed his constitutional powers and assume those responsibilities traditionally reserved for other branches or levels of government. The results of the election may temper any inclination to follow such a course of action, given that the means to deliver on what Trump has promised are largely within his control as President. What is less clear is the extent to which Trump might seek to defund or dismantle significant portions of government or undo existing multilateral agreements with trading partners, in keeping with his stated “America First” approach.
Senate results
Prior to the election, the current party division in the Senate was 50 Republicans, 48 Democrats, and 2 Independents (who caucused with the Democrats). The Democrats held the majority due to the tie-breaking vote of Vice President Harris.
As a result of Tuesday’s election, Trump’s Republicans will take control of the Senate. Currently, it appears the Republicans are on track to end up with at least 52 and as many as 56 seats in the 100-seat Senate.
House of Representatives results
In the House of Representatives, all 435 seats were up for election. Prior to Tuesday, the Republicans held 220 seats, while the Democrats had 212 seats, and there were three vacancies.
After Tuesday’s voting, there were still more than 20 key House races outstanding in the battle for control, and it could take a week or more before final results are officially determined, but the Republicans feel confident they will emerge with a majority.
Why the Congressional results matter
The U.S. Congress has exclusive authority over financial and budgetary matters, through the enumerated power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States. The ultimate disposition of policy promises – and crucially important – the disposition of budget appropriations – are hostage to which party holds a majority in the House of Representatives and the Senate. Control of both houses of Congress will be critical to the new President’s success in getting budgets and major legislation through to approval.
Furthermore, as the President governs with the advice and consent of the Senate on matters of Treaties and of Presidential Appointees (such as Cabinet Secretaries),the future and fate of trade agreements, and decisions on which partisan appointee will populate senior ranks of the vast federal bureaucracy, hinges on that Chamber.
The big picture: the bilateral trade relationship
In his congratulatory message to Mr. Trump following his election victory, Prime Minister Justin Trudeau zeroed in on the importance of trade between the two countries:
“In 2023, trade between Canada and the U.S. amounted to over $1.3 trillion, which means over $3.5 billion worth of goods and services crossed the Canada-U.S. border every single day. Building on Team Canada’s work to deepen this relationship since 2015, bilateral trade between our two countries has increased by over $400 billion.”
The Canada – United States trade relationship is extensive, mutually beneficial and significantly integrated between the two countries:
- 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.”
The first Trump presidency
During Trump’s first presidency, from 2016 to 2020, his approach was to use tariffs as the principal tool for managing trade. One of the most difficult periods in the two-way relationship between Canada and the United States 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 claim 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 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 respective tariffs, as part of a deal to remove irritants that stood in the way of ratifying the newly negotiated NAFTA / CUSMA agreement.
During the election, Trump proposed a 10 per cent across the board tariff on all imports to the U.S. to protect American jobs. Unless he exempts Canada, since we exported 78% of our 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 environment and electric vehicles
Over the past four years, the Democrats’ specific form of protectionism featured massive public spending combined with regulation to further their environmental and trade objectives. In 2022, through the Inflation Reduction Act (IRA), the Biden Administration unleashed US$369 billion 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.”
President 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.” The Budget 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.
How will Trump amend the Biden approach?
Speaking at the Republican convention that nominated him in July, Trump vowed, “I will end the electric vehicle mandate on Day One.” (A Biden administration Executive Order in 2021 mandated 50 percent of all new passenger cars and light trucks sold in 2030 be zero-emission vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles. And, in 2024 the EPA finalized strict “tailpipe emission” standards that would also push the auto industry to accelerate its transition building to electric vehicles.)Trump has since modified his position after gaining the endorsement of Elon Musk, saying this past summer, “I’m for electric cars — I have to be, because Elon endorsed me. I have no choice.”
Still, concerns remain about what he will do with the rest of Biden’s environmental policies, the direct investments and tax credits to businesses and consumers to foster clean growth. As indicated above, Canada has invested heavily in matching the Biden approach to climate change through a focus on electrification of vehicles.
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 2 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 2% 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 this will certainly not be good enough for Donald Trump. 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.
Finally, on Canada’s NATO commitment, just before the election, Kelly Craft, Trump’s Ambassador to Canada from 2017 to 2019 and subsequently the U.S. Ambassador to the United Nations during his first term in office, told CTV in an interview, “Canada, you can do better. I know you can do better. “I believe that Canada needs to wake up and understand that once you work from within, and you strengthen, you will have no better friend than the United States under a Trump presidency, because we have a proven record.”
Energy and the environment
As noted above, through the Inflation Reduction Act, the Biden Administration 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.
As the Brookings Institute has pointed out, “Many of these goals would require actions by Congress…“. And with Republicans control of both houses of Congress assured, support for rolling back much of Biden’s program seems a foregone conclusion. If Trump is successful in significantly increasing American oil and gas production, Canada’s share of the U.S. market may drop, but that risk is mitigated by the fact that much of Canada’s petroleum exports consist of a different, lower grade, oil which fills a different niche than American-produced light oil. Nevertheless, our energy exports to the U.S. are our biggest source of export revenue and underpin the Canadian dollar, and any reduction in revenues from the sector will be impactful.
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. (Abrogation of the Treaty by a party, is of course a possibility, but very, very unlikely.)
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, “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 on July 18, 2023, announced 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.
Implementation of the DST is currently on hold, and it is expected that with Trump’s victory on November 5, Canada may delay going ahead with it pending a dispute panel review.
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 with the United States has recently been quietly emerging as an issue. 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, ISED 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 has been 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. In addition, at the most recent Cabinet retreat in Halifax in September, 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.
Finally, according to Radio Canada, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, and Canada’s Ambassador to Washington, Kirsten Hillman have reportedly met several times this year with Robert Lighthizer, the former United State Trade Representative in the first Trump Administration.
Take aways
To foster a strong relationship with the United States during the second Donald Trump Administration, Canada should focus on, understanding Trump administration priorities, and placing those priorities into a Canadian framing to emphasize to the United States that cross-border collaboration will be an essential element of continental economic security. Collaboration on improving energy, industrial, and natural resources infrastructure such as electricity transmission lines, Critical Minerals supply chains, and the health of the Great Lakes, will benefit both nations’ economic security, energy security, and ecological security.
Within North America, fostering frequent, open, and frank communication with the Trump Administration to address shared concerns such as border security, immigration, and Arctic security will be essential. On Global Issues Canada can continue to emphasize its role as a reliable ally and partner in international forums, working together with the U.S. on cybersecurity, and countering the distortion of fair market practices by some authoritarian states.
By establishing, and then maintaining a robust ability to anticipate and then align (or at least deconflict) with the new U.S. Administration’s priorities, Canada can navigate the complexities of the Trump Administration while ensuring that the bilateral relationship remains strong and beneficial for both countries.
