ARCHIVE: INSIDE OUTLOOK

Obama and Canada: How Long Will the Love Affair Last? Glen Hodgson, Senior Vice-President and Chief Economist, Forecasting and Analysis Winter 2009

The keys to 1600 Pennsylvania Avenue have officially changed hands, and Barack Obama and his team are now in place as the Executive Branch of the United States government. Of course, the recession gripping the U.S. economy and spreading across the globe means that the real-world transition began weeks before the inauguration. Obama’s influence has already been felt in Congress, which is grappling with his fiscal stimulus package and trying to form a more bipartisan approach to proposed massive tax cuts for the middle class and for business.

The real test of Canadian attitudes toward Obama and his administration is yet to come, and it will be driven by issues much closer to home.

Canadians have a positive, if somewhat innocent, attitude toward the newly inaugurated Obama administration. Public opinion polls during the long U.S. election cycle gave Obama as much as 80 per cent positive support among Canadians. But the real test of Canadian attitudes toward Obama and his administration is yet to come, and it will be driven by issues much closer to home. The Canada–U.S. relationship encompasses scores of issues, each playing out daily. Three issues will be top of mind in defining how long Canadians remain in love with Obama.

Economic Woes

The first issue is Obama’s success in dealing with the economic recession. Like everyone else around the globe, Canadians are waiting to see if and when the fiscal stimulus package that Obama eventually signs into law will spark a recovery in U.S. economic growth and a positive shift in consumer and investor confidence. The fact that Congress is already debating a tax cut package that could come into effect by mid-February is a good start.

The Question of Trade

Second, there is the perpetual question of trade and investment between Canada and the United States. Despite deepened economic integration, North American trade has stagnated since 2000 when measured in real terms, with price effects removed. The North American Free Trade Agreement (NAFTA) is fully implemented and offers little scope for new dynamic energy. And Obama said some injudicious things on the campaign trail about revisiting NAFTA that prompted questions about his commitment to the Canada–U.S. economic relationship.

Canadians will be looking for evidence from Obama that he understands Canada is still America’s largest trading partner.

If the love affair is to continue, Canadians will be looking for evidence from Obama that he understands Canada is still America’s largest trading partner and that open trade arrangements with Canada are in everyone’s interest. The Conference Board’s recently published paper, Making Integrative Trade Real: Creating a Value Chain Trade Policy for North America, recommended that reductions in non-tariff barriers—often regulatory differences—should be the centrepiece of a revitalized Canada–U.S. trade relationship.

Military Matters

The third issue is Afghanistan. Obama made withdrawal of the U.S. military from Iraq, and expansion of its role in Afghanistan, a critical plank of his successful electoral campaign. He will be looking for support from a close political and military ally such as Canada. But Canada is already deeply engaged in Afghanistan and has clearly signalled its intention to reduce its military engagement there. The question of how Afghanistan plays out will be a key piece in defining the success of Canada’s foreign policy toward the U.S. and the Obama administration over the coming years.

There are other hot files—the border, the future of the auto industry, climate change policy—but in our view, the three questions identified here will determine whether the romance with Obama lasts.

Glen Hodgson Senior Vice-President and Chief Economist Forecasting and Analysis 613-526-3090, ext. 444