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What a Biden Administration Means for Cross-Border Trade

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What a Biden Administration Means for Cross-Border Trade

After four years of frosty bilateral trade relations between Canada and the United States, the election of President Joe Biden signaled a return to a form of normalcy that had many Canadian businesses with operations south of the border breathing a sigh of relief.

But while the warm relationship between the two leaders was on full display during their first bilateral meeting in February, it may not be enough to thaw the chilled trade file. Since his election, President Biden has signed executive orders doubling down on Trump’s Buy American policies, has canceled the Keystone XL pipeline and by all indications remains committed to putting American interests first.

So, what does this new climate-conscious and protectionist U.S. administration mean for Canadian trade? Let’s take a look.

Buy American explained

Buy American measures are intended to prioritize U.S. companies as the primary beneficiaries of federal spending while also taking aim at those who rely on foreign suppliers. It’s important to note that protectionist trade measures are nothing new in the United States and have been in place in some form or another before the Trump administration took an isolationist posture to international trade.

During the financial crisis in 2008, former president Barack Obama put forward a program that directed federal departments to buy domestically produced goods over foreign alternatives, which irritated Ottawa given how integrated the supply chain is between the two neighbours.

While Canadian officials have had some success in the past securing exemptions from some of these policies, it’s unclear whether that will be replicated this time around, even though Biden has told Trudeau the policies aren’t aimed at Canada. Nonetheless, many companies are worried — and for good reason.

Simply put, the stakes are extremely high for Canadian businesses seeking lucrative federal U.S. contracts. In 2015, Canadian firms of all sizes secured $674 million out of the $290 billion Washington awarded that year alone, which may be surprising given the harsh anti-trade talk from Trump.1 But according to the new administration, it was just that: talk. U.S. federal government contracts to foreign companies actually increased 30% under Trump, and Biden is vowing to get tough on this front.2

Protectionism with a progressive spin?

Despite projecting a pro-trade image, the new U.S. administration is rolling out new measures that could potentially make it even more difficult for Canadian SMEs to access the $600 billion the American government spends on contracts.

Core to this includes raising the threshold on the percentage of components required to be made domestically for it to be considered Made-in-the-USA and qualify under the Buy American Act. How this will be measured and enforced will be under the purview of the soon-to-be-established “Made in America” office that will report to the White House Office of Management and Budget.

Greener trade

With the U.S. rejoining the Paris Agreement and once again prioritizing the environment after four years of backtracking, climate policy will also have an impact on trade. Canadian Environment Minister Jonathan Wilkinson has already met virtually with John Kerry, the U.S. Special Envoy for Climate, and Ottawa will seek bilateral climate action with Washington on a range of issues, notably electric vehicles and carbon pricing.

On the automotive front, expect to see both governments push for manufacturers to produce lower-emissions vehicles with an emphasis on electric car production. Major auto manufacturers are already taking notice. GM, Ford and Fiat Chrysler have all announced billion-dollar-plus investments each into EV vehicle production in Ontario for the North American market.3

President Biden has expressed support for a national carbon tax, but could experience difficulty passing the necessary legislation through a bitterly divided Congress. If he’s unsuccessful, American companies that export to Canada could be subject to a “border carbon adjustment” charge that Ottawa is considering levying against imports from foreign jurisdictions that don’t have a carbon-pricing program in place.4

While we’re only a few months into the new administration’s mandate, expect to see both governments put greater emphasis on green efforts as they work towards a net-zero carbon economy by 2050.

How HSBC Bank can help

HSBC Bank is uniquely positioned to help Canadian companies navigate these challenges by leveraging our in-depth international trade and supply chain expertise, supported by our International Subsidiary Banking business that brings global perspectives and solutions to international issues.

Contact HSBC to find out more about how your business can prepare for and benefit from these new opportunities in the North American corridor.

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