How would a Bernie Sanders presidency affect Canada?

Today is “Super Tuesday” in the United States. On this day, more delegates can be won by presidential nomination candidates than on any other day during the primary calendar. Whatever happens today will likely have a major impact on the political fortunes of Bernie Sanders, the junior senator from Vermont, who seeks the nomination of the Democratic Party.

In spite of his victory in the New Hampshire primary and a close second place finish in Nevada, it remains very unlikely that Senator Sanders will win the Democratic nomination, and an even longer shot that he will become the next president of the United States (as of Feb. 25, the betting markets, which generally outperform pollsters, give Sanders only a 11.1 per cent chance of winning the Democratic nomination and a mere 5.5 per cent chance of winning the presidency).

Nevertheless, in light of his seeming popularity among certain Canadians, as well as the claim that Sanders is the most “Canadian” of presidential candidates (in terms of his policy preferences, not his place of birth), it’s interesting and entertaining to ask how a Bernie Sanders presidency would affect the Canadian economy. Would Canada’s economic performance be enhanced or harmed if Sanders were to become the next president?

Attempting to answer this question is, of course, a highly speculative exercise. For one thing, it is unclear how much of Senator Sanders’ platform would ever be enacted, given that he would face a very hostile Congress. Additionally, even if we could know exactly what policies would be adopted, economic models often do not offer unambiguous predictions, especially when it comes to forecasting the impact of specific policies taken in another country on an economy as whole. With these caveats in mind, here is my (not too serious) take on what a Sanders Administration would mean for Canada. To simplify the discussion, I am going to divide policies into those that would directly affect Canada and those whose effects are indirect.

Policies that would directly affect Canada

• Senator Sanders is an avowed protectionist. He is opposed to all future international trade deals and would renegotiate or scrap all past free trade deals including NAFTA and the Canada-U.S. FTA. Sanders’ trade policy would therefore be harmful for Canadian firms, which benefit enormously from access to the U.S. market. Among other things, Canadian producers would not be able to achieve significant economies of scale and scope if access to the U.S. market were curtailed. Accordingly, I suspect most economists would argue that Sanders’ trade policy would have overwhelmingly negative consequences for Canada.
 
• Sanders is against oil pipelines and has been opposed to Keystone XL from the start. The absence of a pipeline substantially raises the cost of transporting Canadian crude to international markets, reducing the viability of an important sector of the Canadian economy. If Sanders were to become president, it’s unlikely that any oil pipeline connecting Canada and the U.S. would be built in the next four years. This can only have negative implications for Canada’s economic performance.

Policies that would indirectly affect Canada

• Senator Sanders wants to raise taxes on high-income individuals and households. Additionally, a Sanders Administration would increase taxes on corporations. Interestingly, these policies, while likely counterproductive from the U.S. perspective, might have some positive spillovers for Canada. If U.S. income taxes were to be raised sufficiently, this might induce high-income individuals in America to relocate to Canada. Additionally, if corporate taxes, already a mess in the U.S. context, were to be raised even further, Canada would become an even more attractive location for company headquarters. The extent to which Sanders’ tax policy benefits Canada, however, depends critically on the magnitude of these tax increases.

• Sanders would raise the federal minimum wage to $15 per hour. As a result, legal minimum wages in the U.S. would be higher than minimum wages anywhere in Canada. Since most minimum wage workers are employed in local service economies, this is unlikely to have much impact on Canada, although there may be one or two lower wage tradable industries where Canada might gain a slight competitive edge. Accordingly, Sanders’ minimum wage policy may have a small positive impact on low wage employment growth in Canada.

• Sanders would introduce single-payer health care in the U.S., which would likely have two impacts on Canadians. First, Canadians seeking to avoid wait lists in Canada will now have to travel farther to get treatment out of country as the adoption of single-payer health care in the U.S. will likely reduce the availability of private health care in the U.S. Second, and perhaps more importantly, the cost-cutting required to make single-payer health care affordable will reduce the resources available for research and development. This will have negative dynamic consequences for health care in Canada as well as the rest of the world, which more or less free-ride off U.S. R&D investment in health care.

• As president, Sanders would make it easier for unions to organize. That said, a Sanders union policy is unlikely to reverse the long-run decline in unionization in the U.S. Accordingly, the effects of this policy on Canada are likely to be negligible.

• Given the likelihood of political stalemate between a Sanders Administration and a Republican-dominated Congress, policy uncertainty is likely to rise if Sanders becomes president. A growing literature links policy uncertainty with sluggish business investment. While greater policy uncertainty in the U.S. may induce some firms to relocate to Canada (where there is relatively less policy uncertainty), this effect is likely to be swamped by the impact of a slowing U.S. economy on Canada’s economic prospects. More often than not, when U.S. economic growth turns negative, so does Canada’s. Accordingly, greater U.S. policy uncertainty, which would be a likely consequence of a Sanders presidency, is probably a negative from Canada’s perspective.

Taken as a whole, it’s therefore likely that a Sanders Administration would, on balance, negatively affect the Canadian economy. Repealing NAFTA, preventing the construction of oil pipelines, and increased U.S. policy uncertainty will have negative impacts on the Canadian economy. Raising taxes on corporations and the wealthy, lowering the costs of union organizing, and increasing the federal minimum wage might have positive spillover effects on Canada, but these impacts are indirect and unlikely to be of significant magnitude.

I think it especially striking that those portions of Sanders’ platform that are likely to benefit Canada would also do the most harm to the U.S. For instance, higher income and corporate tax rates in the U.S. are unlikely to generate much in the way of additional tax revenue, but will induce greater distortions into an already highly inefficient tax system. Additionally, minimum wages as high as $15 per hour are likely to increase unemployment among the least skilled, a point even conceded by Alan Krueger, an author of one of the original studies that found negligible impacts of minimum wage increases.

I suspect that most Canadians would prefer not to profit off the folly of their closest neighbour!