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Implications of the U.S. Election for Canada and Canadian Commercial Real Estate

Our American friends are having their Federal election today, and Colliers U.S. has put out a report on how the election will impact the U.S. and beyond.  The implications of U.S. politics on Canada are undeniable. The U.S. is Canada’s largest trading partner, and due to our proximity, Canada will forever be part of the U.S. trading block. As a result, regardless of the outcome of the 2020 U.S. election, there will be ramifications for the Canadian economy and Canadian commercial real estate.

A Republican win with four more years of President Trump will continue to positively impact Canadian immigration, tech employment and some aspects of the energy sector within Canada. However, these positives will come with environmental and international trade costs.

Energy Sector:  The Republican energy and environmental policies under President Trump have been much more open towards oil drilling and pipelines.  Although a Republican win will not change the status quo or improve conditions for the energy sector within Canada, a Democrat win under a President Biden will result in cancelled approvals for the Keystone XL pipeline expansion, crushing the pipe dreams for Alberta.

Environmental:  The more open environmental policies of the Republican party will likely have continued negative ramifications on the environment and global warming, which is already impacting commercial real estate operating and maintenance costs, as well as insurance costs.  A Democrat win likely means the U.S. rejoins the Paris Accord and begins taking climate change more seriously again.

COVID-19: The Republicans have taken a more wait and see approach to COVID-19, while going against the science and hoping for herd immunity to develop, whereas the Democrats have promised to listen to the science, both when it comes to global warming and COVID-19.  This listen to the science approach will likely serve the U.S. better, allowing for a faster ultimate return to business, which will benefit both the U.S. and Canadian economies.

Immigration & Tech Employment: Republican policies have been relatively restrictive when it comes to temporary work visas in the U.S.  As a result, Canadian cities such as Vancouver, Toronto and even Calgary and Edmonton have benefited from companies looking to bring tech talent closer to their head offices in the U.S., but unable to actually bring them into the U.S.  The Democrats have promised to reverse Trump’s H1-B visa freeze.  Therefore a Democrat win will potentially negatively impact Canadian office markets, particularly in Vancouver.

International Trade:  President Trump and the Republicans have been much harder on Canada when compared to previous administrations.  Upon winning the election in 2016, President Trump immediately launched trade disputes and NAFTA renegotiations with Canada, and despite Canada agreeing to the new USMCA, the Trump administration continues to battle Canada when it comes to trade, with Buy America policies and tariffs on aluminum and softwood lumber, among other things.  The U.S. has also effectively paralyzed the WTO dispute system.  Furthermore, the U.S. has effectively inserted Canada between the U.S. and China in their trade war.  All of this had led to continued uncertainty, impacting business confidence within Canada.  A Democrat win will mean greater U.S. cooperation with allies, resulting in less uncertainty with our largest trading partner.  The Democrats under Biden would look to get the U.S. back on track with the WTO, and renegotiate the U.S. entry into the CPTPP.  However, regardless of who wins, Buy America policies and softwood disputes will remain.

U.S. Taxation: The Republicans have had fairly favourable tax treatment for U.S. companies.  A Democrat win would mean a rise in corporate tax rates, which would automatically make Canada’s tax system more competitive by default.  If the Democrats increase taxes on foreign earnings and 1031 Exchanges for real estate investors, it could impact foreign investment from the U.S. in Canadian commercial real estate.  Furthermore, likely fiscal stimulus under Biden ought to depress the U.S. dollar, while adding to upward pressures on the Canadian dollar.  This would reduce the competitiveness of U.S.-dollar-domiciled investors and funds, potentially restricting their activity.

Regardless of who wins the 2020 U.S. election, there will be both positive and negative ramifications for the Canadian economy and Canadian commercial real estate. However, knowing what to expect over the next four years will help everyone make the decisions they need to make. Hopefully we do not have to wait too long for the election results.

View the The U.S. Election and Implications for Global Real Estate Report for more insights.