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What do the U.S. mid-term election results mean for Canada?

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Alex Carrick

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Alex Carrick is Chief Economist for Reed Construction Data. He specializes in economic forecasting and statistical services.

Economists

The November 2 mid-term election results in the U.S. have pushed that nation onto the same ground where a number of other sovereign states are currently standing. Discomfort and uncertainty about the future have stymied electorates in many jurisdictions around the world. Similar to minority governments elsewhere, the U.S. has shifted to an almost even balance between a Democrat in the White House, an almost split but still Democratic-led Senate, and a Republican-controlled House of Representatives. Washington lies under threat of gridlock.

The November 2 mid-term election results in the U.S. have pushed that nation onto the same ground where a number of other sovereign states are currently standing. Discomfort and uncertainty about the future have stymied electorates in many jurisdictions around the world. Similar to minority governments elsewhere, the U.S. has shifted to an almost even balance between a Democrat in the White House, an almost split but still Democratic-led Senate, and a Republican-controlled House of Representatives. Washington lies under threat of gridlock. The presence of Tea Party luminaries such as Rand Paul of Kentucky and Marco Rubio of Florida further complicate the dynamics. They owe limited allegiance to the GOP establishment and were elected on platforms that include lower taxes, less spending and smaller government. A prime goal set out by the Tea Party is repeal of the March health care act. This is not likely to happen, since President Obama retains veto power. However, there seems little doubt that many of the provisions will be adjusted. Included will be lower health care taxes on business firms. Republican control of the U.S. House of Representatives will bring forward a business-oriented agenda. The Chairmanship of key committees will be moving across the floor. With respect to a wide range of issues, the liberal agenda of the Democrats will come under modification. Another case in point will be financial sector reform as contained in the Dodd-Frank Bill. Reporting and regulatory provisions for financial firms will be eased. In housing markets, Republicans favor extricating government from the mortgage lending business. Public sector backing of Fannie Mae and Freddie Mac may give way to more private sector involvement. High on the agenda for the newly constituted House will be extension of the Bush-era tax cuts for everyone, including individuals earning $250,000-plus. This may seem contradictory to the Republican goal of reducing the $1.4 trillion deficit, but the alternative (i.e., letting the credits expire and effectively increasing taxes) is deemed unacceptable as long as the unemployment rate remains stuck near 10.0%. There will also be strong resistance to Democrat-proposed plans to increase taxes on the profits earned by corporations from out-of-the-country operations. Reducing the deficit implies another round of stimulus spending will not be forthcoming. That means much of the responsibility for economic growth lies with the Federal Reserve. Record low interest rates will continue well into next year. Further sharp increases to the money supply would normally precipitate a drop in value of the U.S. dollar. However, if currency watchers decide the U.S. is more likely to get its fiscal house in order, the greenback may hold its place. The Obama agenda in the environmental area will be pushed to the back burner. A cap and trade system to reduce carbon emissions will fall by the wayside at least until the next presidential election campaign in 2012. This has implications for Canada. The Harper government in Canada has already indicated that it wants a joint energy policy with the U.S. and is not prepared to go it alone. Criticism of mega project development in Alberta’s Oil Sands has been a key feature of Democratic-led U.S. energy policy. An easing in such tensions may now be easier to achieve. On the labor front, the pro-union agenda promoted by the Democrats will be somewhat diminished. There will also be stronger action taken against illegal immigration. That will leave the question of legal immigration simmering. Major high-tech firms want freer rein to hire highly skilled workers from outside the United States. Resolution will be postponed for a while. Spending on defense will hold its ground, with more money being doled out to contractors. Republicans have placed more emphasis than Democrats on being prepared to meet any challenges that might be arising from a Chinese air, navy and ground presence that is growing. The third year of a Presidential term has traditionally been when the “pork” has been most generously distributed. Such is not likely to be the case in 2011. However, to the extent that businesses will be pleased to operate under fewer regulations, this will help promote more hiring. More U.S. jobs and better economic prospects will have significant spillover benefits for Canada. On the lighter side of the news, one form of U.S. stimulus spending is winding down. Record amounts were spent by candidates from both parties on campaign efforts during the lead-up electioneering season. This has come to an end for now, to be picked up again in two years. Finally, Proposition 19 in California which would have decriminalized recreational use of marijuana in small amounts was defeated. This leaves British Columbia as the de facto leader on both sides of the border when it comes to achieving a high, be it Rocky Mountains or otherwise. Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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