Outlook for the US presidential election and Canada - Nomura

Analysts at Nomura offered a summary and conclusion of the outlook for the US presidential election and Canada while suggesting that both candidates would be negative for Canada, but a Clinton presidency would be less damaging.

Key Quotes:

"The result of the US presidential elections is creating a lot of uncertainty, in terms of both who will win and what policies will be implemented once they are elected. Nevertheless,
comparing the impact of a Trump presidency and a Clinton presidency based on current proposals, we concluded that both candidates would have a negative impact on the Canadian economy. However, a Clinton presidency would be only marginally negative compared with the status quo, while a Trump presidency would have a much bigger
negative impact.

Hillary Clinton’s domestic policies are likely to lead to slightly stronger growth in the short term, which should be positive for Canadian exports. However, her trade policies especially her rejection of TTP, would be negative for trade in the longer term. While not all Donald Trump’s proposals would be harmful for Canada, the overall impact would be negative. This would come from the decline in trade, from both rejection of trade agreements and his impact on the US economy, increased border frictions, increased environmental costs, and higher borrowing costs in Canada due to higher yields in the US. This could be mitigated slightly by an increase in oil exports following the construction of the Keystone XL and other pipelines and by the positive impact on Canadian growth from higher military spending that his international disengagement could generate.

A negative impact on trade could not come at a worse time for Canada considering how a recovery in export growth to the US will be crucial to stimulate business investment and growth locally. As we have mentioned before, a contraction in external demand from the US might compel domestic Canadian policies to take action in an even more decisive
manner through both fiscal and monetary means. However, the regressive structural changes that may ensue in US-Canada trade relations may reveal the futility of using
such cyclical tools in the longer run. Moreover, while higher yields in the US as a result of Mr Trump’s policies would likely lead to a weaker CAD, mitigating some of the negative impact from trade, there is a risk that those higher US yields push up Canadian yields and borrowing costs. Given the vulnerability of Canadian households to higher borrowing costs, this could have a negative on consumer spending and even lead to financial stability concerns."