By Camden Hutchison, Assistant Professor, Peter A. Allard School of Law, University of British Columbia
Many Canadians welcomed the election of Joe Biden as America’s 46th president. Not only was the Trump era marked by volatility and extremism—culminating in a violent attack on the U.S. capitol—but Trump’s “America first” policies were directly harmful to Canada. Under Trump, Canada suffered trade tariffs, threats to end NAFTA, and even personal insults. It is hardly surprising, then, that Canadians have welcomed Biden with a mixture of optimism and relief.
Not all of Biden’s political agenda will benefit Canadian interests, however. Judging by his campaign promises and early executive actions, President Biden will have both positive and negative effects across a range of Canadian industries. This is especially true for Canada’s burgeoning tech sector, which faces new challenges and opportunities. Although the effects of Biden’s presidency will be wide-ranging, the consequences for the tech industry are greatest in three areas: environmental policy, immigration, and corporate tax reform.
Regarding the environment, Biden’s very first policy measure was to cancel the Keystone XL pipeline, a serious blow to Canada’s oil and gas industry. The damage to the Canadian economy may be offset, however, by a U.S. commitment to addressing climate change, which will likely expand the market for Canada’s innovative cleantech industry. The Biden administration’s goal of making the U.S. carbon neutral by 2050 will require U.S. industries to adopt product solutions in energy management, storage technology, and carbon sequestration, areas in which Canadian firms are on the cutting edge. Supporting the electrification of the world’s largest economy could be a golden opportunity for Canadian businesses.
That is, however, if Canadian firms can access U.S. buyers. Biden’s recently announced “buy American” policy raises troubling implications for Canadian access to the U.S. market. Although the policy only relates to government procurement—historically a small portion of Canadian sales to the U.S.—it signals an ongoing protectionist sentiment that could disadvantage Canadian firms. It will be important for the federal government to push back aggressively against U.S. protectionism to ensure a fair market for Canadian technologies.
The second area in which Biden could have a major impact is immigration policy. Although President Trump’s harsh immigration policies and xenophobic political rhetoric were offensive to many Canadians, they had the ironic benefit of shifting skilled immigration to Canada, where it has helped fuel a Canadian tech boom. Even U.S. tech firms, including Google, Facebook, and Microsoft, have opened or expanded offices in Canada, partly due to the flexibility of Canadian immigration laws. If the U.S. becomes a more welcoming immigration destination under President Biden, this inflow of skilled immigrants—and its benefits for the Canadian tech sector—could shift south.
A related danger is “brain drain” of Canadian STEM graduates to the U.S., where they often earn much higher salaries. Brain drain is a long-standing problem which continued even during the Trump era. Interestingly, one of the major hesitations of Canadian graduates considering relocation to the U.S. is “the American political climate and approach to social policy.” If this climate improves under President Biden, the problem of brain drain could become even worse.
Finally, Democratic tax increases could benefit the Canadian tech sector by raising its competitiveness relative to the U.S. Although Biden’s tax reform agenda remains vague, his campaign statements suggest it may include increasing corporate income and capital gains taxation. These increases would make Canada more attractive as a destination for both entrepreneurship and investment capital. Canadian startups already benefit from targeted tax incentives which have boosted domestic investment. Tax increases south of the border could further increase Canada’s appeal.
Unfortunately, the impact of COVID-19 has greatly strained government finances, and increased federal spending has led to a ballooning federal budget deficit. The Canadian government will face a difficult task in returning to fiscal stability, but lawmakers should resist the temptation to raise taxes on growing companies, which may simply divert investment to the United States. Indeed, the government should consider expanding tax benefits for startups to attract American venture capital.
Ultimately, the greatest effect of the Biden administration on Canada could be restoring U.S. economic growth. If Biden is able to successfully tackle COVID-19 and relaunch the American economy, Canadian tech will surely benefit, given the deep interconnectedness of the two countries’ economies and Canadian tech firms’ growing access to U.S. investment capital. A resurgent U.S. economy will also mean greater competition, however. Canada must prepare itself to meet this competition head-on.