Election Aftershocks - Technology, Economic Security and Implications for Canada
Some quick thoughts on the implications of the US election
Well, that happened. I won’t go into the result itself, how it came about, or what that means for US politics. Others will be doing that in far more detail for a long time to come. Instead, I have written a few quick thoughts on some of the implications for Canada in the technology and innovation space. I hope you find them interesting.
Technology, Economic Security & China
The impacts of Trump’s election on Canada are significant and wide-ranging. I want to look in particular though at the impacts for Canada from the US quest for economic security and its technological supremacy over China - a major Trump priority, but one that has also been a big Biden focus.
Since Trump’s first term, the US has been engaged in a bipartisan effort to counteract the threat to US tech lead posed by China, and to slow down, if not outright prevent, Chinese advances in certain critical technologies, such as semiconductors. Similarly, the security of data, components, and supply chains has also increased as a priority.
While Trump began this process with a trade war and the imposition of sweeping tariffs, the Biden administration continued with those policies and started deploying a range of other tools. A two-pronged approach was used. The first prong sought both to hobble China - through rules and orders aimed at cutting off China's ability to manufacture advanced chips for example and greater regulation of both inbound and outbound investments. The second prong involved a muscular industrial strategy designed to increase US leadership and competitiveness in advanced technologies. This included massive subsidies as well as significant new funding for R&D. These were all bipartisan measures, passed through the Inflation Reduction Act and the CHIPS and Science Act.
More recently, moves against China have expanded to the EV space with the imposition of 100% tariffs on Chinese-made EVs, with Canada following suit soon after. In addition, the US is taking steps to restrict data flows to China from connected vehicles. These have been motivated by similar motivations or economic security, hobbling the growing Chinese dominance of the EV sector, and protecting domestic auto jobs - something Trump has also promised to do.
While Trump has been critical of the CHIPS act, thinking instead that only tariffs are needed, there is no reason to think that the underlying battle for technological supremacy is likely to change under a Trump administration. Indeed, it is only likely to rachet up and Trump is likely to use his bully pulpit to force others to fall in behind.
This will have major implications for Canada. As I have written about previously, “the government is responding to US pressure on China and undermining Canada’s multilateral credentials and trade diversification efforts in the process, without a real conversation about what that means.” Canada will face even more pressure from Trump to follow the US lead. We may be on a path to “Fortress North America”, with the CUSMA review used as an opportunity to bring Canada and Mexico into line on anti-Chinese tariffs or face massive tariffs in return, hobbling 78% of Canada’s trade.
Now, more than ever, we need to have a real strategy and vision to guide some of the difficult decisions coming Canada’s way.
We are somewhat between a rock and a hard place - with so much of our economy dependent on US trade we can’t ignore their asks. Yet following blindly US demands risks shutting off or limiting other global markets making us even more dependent.
This does not mean Canada is confined to being reactive to the whims of the sleeping elephant to our south. We have agency.
What this could involve is the topic for another longer post but some things come to mind.
One, we need to be clearer-eyed about where we fit in global value chains and where we can expand our role. I wrote about this in regards to AI but it applies to other critical and emerging technologies. We can’t win everywhere but we have the talent and resources to own some key parts of the picture. We need to identify them and double down with strategic investments.
A second point is about how we can show leadership internationally. Canada has, in the past, been a leader in multilateral forums. But today it is others, such as Singapore and New Zealand, who are those at the cutting edge, exploring innovative deals such as the Agreement for Climate Change, Trade and Sustainability or Digital Economy Agreements. These tackle emerging issues and opportunities in ground-breaking ways. Yet we’ve been absent from those negotiations. Other countries out there are interested in pushing the envelope - Canada should be one of them. If we are being forced more in America’s corner in some areas we more than ever need to seek opportunities where we can diversify.
Finally, we are obsessed with the energy and manufacturing sectors but what about turning more attention to Canada’s services sector? Energy and manufacturing have formed the backbone of Canada’s exports for a long time, employ a lot of people, and have a major role going forward (even if that needs to evolve such as in the shift to renewables), but they are not the only parts of the economy that matter. Almost 74% of Canada’s GDP comes from service-producing industries. Tradeable services, such as financial services, technology and software services, creative services, and legal services, all employ millions of people and add billions to Canadian GDP. They are also notably not subject to tariffs (even if they are subject to a range of non-tariff barriers). Yet where is the strategy for increasing our services productivity and growing our services exports? Are we as clued into reducing those non-tariff barriers in other countries as we are when it comes to protecting our dairy industry?
We can and we should do better at being proactive. Waiting to respond to the elephants twitches and grunts will only leave us on the backfoot.
There are of course so many other impacts - such as what this means for US anti-trust efforts and the implications there for AI development and business models - but more for another time perhaps!