How a Donald Trump Presidency will Affect your Finances

What Canadians Need to Know About America’s Next President

People from all around the world were anxious going into the 2016 U.S. presidential election. Sometimes it felt like the two frontrunners were throwing more shade at each other than discussing real issues that actually matter.

Some pundits warned that if Donald Trump becomes the next president, there will be hell toupee. 😄 In the end, Trump won and will become the 45th U.S. president. And since he is replacing Barack Obama, I guess you can say that orange is the new black. 😀

But before anyone freaks out, I don’t think Donald Trump will ruin the economy like some critics say he will. It’s important to put things into perspective. So here are some things to consider for Canadians about our finances and investments in the short to medium term. 🙂

Donald Trump on Canada/U.S. Trade

We know that Donald is willing to be protectionist in order to create more jobs for Americans. He also wants to renegotiate NAFTA. But this shouldn’t have any large impact on trade between our 2 countries. Scott Sinclair, a senior researcher with the Canadian Centre for Policy Alternatives says that “most of Canada’s free trade with the United States is locked in through World Trade Organization (WTO) rules, and doesn’t apply to NAFTA. Furthermore, anti-trade policies will also hurt the U.S. economy. Just compare the living standards of insular versus free-trade countries around the world. Since Donald will be judged, at least in part, by the performance of the economy, I don’t expect any drastic changes to Canada/US trade agreements. I also think programs like NEXUS aren’t going anywhere. Cross border shopping has way more benefits than drawbacks for the U.S.

Donald’s anti free-trade position seems to be more about an anti-Mexico sentiment, so I don’t think he’s out to purposefully tarnish the relationship between Americans and Canucks. But if he does impose new tariffs on goods moving across our border, then the impact to Canadians will depend on where we live. About 50% of trade in British Columbia is now done with countries other than the U.S. It has been a deliberate effort of the provincial government over the past 12 years to divest away from Canada’s largest trading partner. However, 80% of Ontario’s trade is with the U.S. so people in Ontario will be hit harder. Alberta’s trade is nearly all dependent on the U.S. The province has diversified its economy over time, but it’s still heavily dependent on oil and gas today. Donald wants to ramp up fossil fuel production in the U.S. which would likely keep energy prices lower for longer. Trade is only a part of the much larger economy. But it would be prudent for Albertans to prepare for an extended recession just in case. 🙁

Currencies and Interest Rates

Our loonie will likely stay lower for longer if the U.S. doesn’t import as much Canadian goods anymore. The value of a country’s currency depends on how productive its people are. Less trade with the U.S. means slower economic growth for Canada. This is also why the Mexican Peso dropped 10% after the election. But a lower Canadian dollar may actually help us gain back some manufacturing jobs, and make it more profitable for exporters to sell their goods. This boost in tourism and exports could make up some losses from any negative anti-trade effects. The FED in the U.S. may also take longer to increase its country’s interest rates.

Investments

• Real estate is going higher. If you plan to live in Canada for the next 10 years and are waiting for a right moment to buy, now’s as good a time as any. With a cheaper loonie international investors including Americans should continue to buy Canadian properties at a discount to their own domestic currency. Also, mortgage rates could fall before rising. Benjamin Tal of CIBC Capital Markets believes the the governor of the Bank of Canada may “use Donald Trump’s presidential victory as a scapegoat to allow him to cut interest rates once again.”
• Gold and silver should also appreciate. With all the military spending and tax cuts on the way, more money printing and inflation will likely be the result. There’s a high probability gold will be higher at the end of Donald’s 4 year term than today.
• Stocks will be volatile because Donald is full of surprises which the financial markets generally don’t like. But over the next 2 to 4 years your portfolio should be fine. Stock prices ultimately reflect investor’s sentiments about where corporate profits are heading. A longer period of low interest rates is especially beneficial for stock sectors like utilities and pipelines, which tend to weaken when rates rise. Bonds should also continue to perform well.
• Investing in cement producing companies near the U.S./Mexico border could be a fun but speculative move, if you know what I mean. 😉

On the day following the election, shares of cement and construction companies Martin Marietta (MLM) and Vulcan Materials (VMC) each climbed about 10%.

Final Thoughts

I have some concerns about Donald’s anti-free trade stance. But I think much of his rhetoric during the campaign was simply a show of grandstanding. He likes to be the center of attention after all. So although it’s possible he might start taxing U.S. dividends in a Canadian RRSP accounts, it would be higher impractical and very unlikely to happen. Although some parts of Canada’s economy may take a hit in the short term, it will actually be the catalyst that we need to improve our labour market and economy in the long run. We know that Donald supports pipelines. Keystone XL will go through which will benefit Canada. The Northern Gateway Pipeline which would run from Alberta to BC’s west coast will almost certainly be approved and built in order for Alberta’s economy to survive. This will be especially true if the U.S. puts up trade barriers for Canada’s oil and gas. But establishing energy trade with Asia where the GDP is growing much faster than the U.S. may turn out to be very lucrative.

A lower Canadian dollar can also spur innovation in Canada’s technology sector. The world needs more clever ideas like MapleMatch.com, which is a dating site that tries to pair Americans with Canadians, lol. 😀 For single Canadians, finding a partner has never been easier than now, lol. Many Americans are looking to move to up here. Canada’s immigration website even crashed due to traffic overload during Tuesday’s election as Donald Trump took the lead.

But it’s still too early to make any definitive assumptions as to what Donald Trump will actually do when he becomes inaugurated next year. We don’t know how far he plans to take his anti free-trade position. Furthermore, there are checks and balances in place in the Senate and the House to ensure political power isn’t overly concentrated in the small hands of any one individual. So I don’t expect any crazy policies to come out of a Trump administration. And despite his personal foibles, he is still a competent and adept leader in many ways. He’s built large businesses. He’s a famous TV personality. He created a recognizable brand. He’s published many books, even though it wasn’t always easy for him since he tends to get stuck in Chapter 11 a lot. 😄 And he won the presidential election with no prior political experience.

The smart move for both Canadians and Americans is to just stick with your original financial plans. If you’re not retiring any time soon, don’t worry about your investments. Let them ride with the markets. If you’re already retired, then you should already be mostly invested in fixed income and other safe assets, so major stock market movements shouldn’t affect you anyway. 🙂

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Random Useless Fact:

The Simpsons predicted this would happen.