The dust has (almost) settled on the 2022 American midterm elections and most of the votes have been counted. The new Congress will take office in January 2023, and questions remain on what their agenda will mean for Canada. Here’s what it means for Canadian businesses looking at cross-border issues.
WHAT DOES IT MEAN FOR YOU?
Pierre Trudeau once said that living next to the United States is like “sleeping with an elephant.” If only he knew the nature of the American administration his son would contend with. Canada’s existence in the Donald Trump era has been more akin to dodging a herd of elephants, fearful that one wrong step could result in a new tariff, trade war or tweet — whether about steel, supply management or softwood lumber.
Those sore points remain under the Biden administration, although the Democratic president has successfully overseen a return to more “normal” relations with Canada. An example of their ability to cooperate is the recent bilateral pilot project aimed at fixing the controversial Nexus system for border crossing. President Joe Biden is partial towards economic trade protectionism, most notably in his “Buy American” initiative, which requires products utilized for federal infrastructure projects to contain mostly American-made materials. The Biden administration’s stance on electric vehicles provides an example of how difficult selling foreign-made products can be in the current era. The government proposed a series of tax credits for American consumers who purchase domestically-produced electric vehicles, with extra credits for American union-produced cars. The Canadian government reacted harshly, promising tariffs if the Biden administration did not reverse course. Democratic Senators eventually reached a deal to extend the credits to all North American-made vehicles. While this new deal meant Canadian vehicles were eligible for the tax credit, it serves as a reminder that the Biden administration is not afraid to engage in protectionist measures, at times reminiscent of the Trump administration.
In the House, the next two years are likely to be adversarial and filled with gridlock, as the Republicans work to counter ESG initiatives and financial regulation by the Democrats. It remains to be seen how a Republican-led House will act without Trump in the picture, although economically nationalistic policies play well with the right-wing base. Yet protectionism may be one of the few things the Republicans and Biden administration see eye-to-eye on, meaning that difficulties for Canadian companies engaged in cross-border business could persist.
The Michigan gubernatorial race may well prove to be the most significant for Canadian business. Whitmer has long tried to shut down Line 5, an Enbridge- owned oil pipeline that runs across the Straits of Mackinac, an environmentally significant waterway in Michigan that connects Lake Huron and Lake Michigan. While court challenges have so far kept Line 5 afloat, it is possible that the freshly re-elected Whitmer will redouble her efforts to close the pipeline, a move that the Trudeau government strongly opposes. Enbridge estimates that closure of Line 5 would result in Michigan, Pennsylvania, Ohio, Quebec and Ontario seeing a 45% reduction in fuel supply. The Trudeau government has publicly called Line 5 a vital piece of Canada’s energy security and prosperity, meaning that Whitmer’s re-election will do nothing to soothe concerns over its future.
It is unlikely that the midterms will have major ramifications for Canadian business that were not already transpiring under Biden. Industry leaders can potentially expect more economic protectionism, particularly with a Republican House. The Republicans are likely to continue with their nationalistic policies from the Trump era, and may well block anything from the Biden administration that does not adhere to these beliefs. For example, Congress may be hesitant to pass a new trade deal that is not protectionist in nature. They also oppose clean-energy initiatives and tend to be more pro-pipeline than the Democrats. This could provide opportunities for Canadian oil, although Biden’s interest in clean energy and decision to cancel expansion of the Keystone XL pipeline make this far from a certainty.
You would be forgiven for assuming that the Republican Party would win control of the House of Representatives, but as our well-informed readers know well by now, the Democrats defied the polls and held the United States Senate. However, the Georgia run-off could give them a stronger majority — and key control over Senate committees The 100 seats in the Senate were split 50-50 between the Democrats and Republicans since the 2020 election, with Vice President Kamala Harris acting as the tiebreaking vote. Currently, the next Senate is made up of 50 Democratic seats to 49 Republican seats.
All that remains to be decided is Georgia’s vacant seat, which will come down to a run-off race between incumbent Democrat Raphael Warnock and Republican challenger Herschel Walker next week. A Republican victory would ensure another 50-50 Senate, which would still fall under Democratic control thanks to Harris’ tie-breaking vote. A Democratic victory would result in a 51-49 seat majority and ensure Democratic control over all Senate committees — a key procedural win that would give them more control over appointments (including to the judiciary) and the speed of legislation and hearings.
House of Representatives
The Republicans took control of the House of Representatives, the expected outcome. While some races are still outstanding, current projections suggest the Republicans will win at least a 221 seat majority, representing an eight-seat loss for the Democrats. Despite losing the House, this result is a surprisingly good one for Biden. A sitting president’s party virtually never performs well during the midterm elections in the House, losing an average of 26 seats since the end of World War II. An eight-seat loss represents the best performance for a sitting president’s party since 2002, when George W. Bush leveraged his post-9/11 popularity boost to an eight-seat gain. While this outcome further limits Biden’s ability to pass legislation, a soft majority could allow opportunities for negotiation with moderate Republicans on issues of common concern, such as the economy and trade, while more extreme members of the GOP push forward with investigations of the President and his family. The Republicans are currently engaged in a debate between extreme and moderate caucus members over appointing the next Speaker of the House. The Speaker not only sets the House’s agenda and tone, they determine what legislation comes to a vote. A more extreme Speaker could result in a far more adversarial House.
The Democrats also had a strong performance in gubernatorial races. Of note for Canadian businesses: border-state Michigan governor Gretchen Whitmer defeated Republican nominee Tudor Dixon, a Trump-endorsed candidate who pushed COVID-19 conspiracy theories and called Prime Minister Justin Trudeau a “tyrant”. The Michigan state legislature will also fall under Democratic control for the first time in 40 years. The Democrats also won victory in Pennsylvania and Nevada, two states that will likely prove pivotal in the 2024 presidential contest. The Democrats also emerged victorious in the Massachusetts gubernatorial race. The only Republican to exceed expectations was Florida governor Ron DeSantis, widely seen as a 2024 presidential candidate and possible successor to Trump, who cruised to re-election with a 20-point margin over Democratic challenger Charlie Crist.
Earlier this month, McMillan Vantage was pleased to co-host a webinar with ArentFox Schiff, featuring former Senator Byron Dorgan and former House member Phil English about the implications of the midterm results for Canadian cross-border businesses. Insights from that conversation have been captured in this piece. If you are seeking government relations advice to navigate cross-border issues, you can reach out to the McMillan Vantage team at email@example.com