U.S. primaries: An amazing race

What it all means for Canada so far.

With Super Tuesday results in, the U.S. presidential race is a battle royal. In one corner, Barack Obama and the Forces of Change face off against Hillary Clinton, championing Experience. Meanwhile, in the Republican camp, National Security flag-bearer John McCain is now the clear front-runner. What all this means for Canada, entertainment factor aside, is a set of sharply divergent views on how to govern an economy that buys 75% of our exports.

To stem the sub-prime mortgage bleeding, Clinton called in January for a 90-day freeze on foreclosures, $30 billion in immediate relief to homeowners to cover mounting heating costs, $50 billion in green-energy job-creation programs, and $10 billion in infrastructure-related stimulus spending. Never mind that America’s public finances are in no shape to fund it; the plan comes as core inflation is soaring — up 4.1% over December 2006, according to the latest Bureau of Labor Statistics figures.

Obama has proposed $75 billion in tax cuts for low- and middle-income families, with $45 billion in reserve. As for free trade, he called NAFTA a “mistake” in the South Carolina debate. If elected, he says he will renegotiate the deal, potentially throwing into question the US$2.4 billion in trilateral trade that flows across Canada and Mexico’s borders each day. Details, of course, remain sketchy — and neither Obama’s senior economic adviser, University of Chicago economist Austan Goolsbee, nor his spokespeople cared to shed further light.

Meanwhile, senior policy adviser to McCain, Doug Holtz-Eakin, assures Canadian Business his man remains a staunch supporter of free trade. McCain’s stimulus package calls for no direct spending but rather a reduction of the main corporate tax rate from 35% to 25%, the ability to deduct capital and technology investments in the year that they’re spent, and a permanent tax credit equal to 10% of a company’s expenditure on wages to go to R&D. (The campaign has no estimates yet for how this program will stimulate the economy.)

McCain has twice proposed a bill for a cap-and-trade system on greenhouse-gas emissions, which could signal headaches for the Canadian oilpatch. But Holtz-Eakin says that any movement on cap-and-trade would obviously require other countries’ co-operation.

The only candidate who actually spent any time in the business world, Mitt Romney, couldn’t get any political traction from it. One place he won was Michigan. With 7.4% unemployment (and rising), it has been in a one-state recession for months. Yet in mid-January, Romney said that all that was needed for a resurgent auto sector was less government regulation, more investment in jobs and education, and bang! “Let’s show them how fast a Mustang will go!” Other Republican voters weren’t buying it. After a poor Super Tuesday showing, Romney withdrew from the race.

So what does it all mean? Opportunity. Amid the uncertainty, U.S. assets are going cheaply. And Canadians are buying — to the tune of $65 billion last year, according to a recent Thomson Financial study. But here’s the caveat: a U.S. downturn will also mean a kick in the pants for Canada. With fewer buyers stateside for our goods and services, now looks like a good time to start finding new markets. “Consider: the U.S. market in car sales peaked in 2005, at 17 million cars,” says Carlos Gomes, an auto sector analyst with Scotia Capital, “whereas this year 12 million cars are projected to be sold in the BRIC countries — Brazil, Russia, China and India. Those markets have plenty of room to grow. That’s where Canadians should be concentrating their attention.”