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America's Post-Election Political Gridlock, Policy Malaise Could Stifle Canada's Economic Growth

VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 01/17/13 -- The combination of policy uncertainty and political gridlock in the United States following the 2012 election could harm economic growth in Canada, warns a new series of essays from the Fraser Institute, an independent, non-partisan Canadian think-tank.

"While Canadians are not allowed to vote in U.S. elections, our fortunes and prosperity are intimately affected by the electoral decisions of our American neighbours," said Jason Clemens, Fraser Institute executive vice-president and co-editor of The U.S. Election 2012: Implications for Canada.

"Polls in Canada consistently show overwhelming support for President Obama, but his re-election combined with a divided Congress and the policies likely to be implemented over the next four years present a number of real, immediate risks to Canada-as well as opportunities."

Comprising 10 essays from preeminent Canadian and American scholars, the report examines critical economic issues that underpin the Canada-U.S. relationship. Essays of note include:

"Canada's Challenges in the Face of U.S. Monetary Policy" by Jerry Jordan (Former President, Federal Reserve Bank of Cleveland):

As the United States, Europe, and Japan become more tolerant of inflation, their currencies will likely depreciate while the currencies of smaller, open economies like Canada will climb. Persistent appreciation of the Canadian dollar against the U.S. dollar will mean increasing competitive pressures on both Canadian industries and firms that seek to export, and on Canadian companies that must compete with foreign imports.

"Such currency challenges often lead to worsening policy responses such as trade protectionism," Jordan said.

"The Effect of U.S. Financial Market Regulation on Canada" by Moin Yahya (University of Alberta):

The re-election of President Obama means the full implementation of what is popularly referred to as the Dodd-Frank Act, which imposes new regulations on the financial services sector in the U.S. Yahya argues that the impact of Dodd-Frank and its accompanying regulations on the Canadian financial system is highly uncertain because specific provisions concerning foreign banks have yet to be developed. Other rules may apply inadvertently to Canadian companies doing business in the United States, such as brokerage firms that trade American stocks for clients in the U.S. or Canada.

"Clearly, there will be adverse effects on the Canadian banking and financial services sector from the regulations imposed by U.S. legislators," Yahya said.

"U.S. Energy and Environment Policymaking in Obama's Second Term" by Chris Horner (Competitive Enterprise Institute):

The Obama administration will likely introduce a host of environmental and safety regulations aimed principally at the energy sector, and more specifically the oil and gas sector, that will adversely affect production.

"The risk for Canada if it copies American energy regulations is that it will inadvertently impede the development of its own opportunities," Horner said.

"Obamacare and Canadian Health Care" by Steven Globerman (Western Washington University):

Obama's re-election ensures the enactment of the Patient Protection and Affordable Care Act (ACA). While specific implementation details remain to be worked out, Globerman argues that the ACA will likely reduce rates of technological change in the U.S. health care sector which, in turn, will reduce the availability of new medical technology to Canada. He also warns that the emergence of rationing and waiting times in the U.S. might also increase the costs of Canadian health care by constraining provincial governments from using spare capacity in the U.S. as a buffer against "excessive" waiting times in Canada.

"Rather than relying upon sending Canadian patients to the United States to deal with excessive wait times, provincial governments will presumably need to add domestic capacity or else increase waiting times for Canadians to receive timely medical treatment," Globerman said.

"This will oblige Canadian governments to spend more on health care."

"How Canada Could Take Advantage of Changes to U.S. Tax Policy" by David R. Henderson (Naval Postgraduate School and the Hoover Institution):

Henderson outlines the competitive disadvantage Canadian income earners face relative to their American counterparts with respect to income taxes. Canadians face higher income tax rates that kick in at lower levels of income compared to Americans; this presents an opportunity for Canada over the next decade or so: balance budgets then reduce personal income taxes.

"Income taxes are the largest source of revenues for governments and the single largest tax for the top 50 per cent of income earners. Continued deficits will prevent the U.S. from implementing sustainable tax relief over the next decade," Henderson said.

"This provides Canada with an opportunity to gain some level of comparability if not a competitive advantage vis-a-vis the U.S. with respect to income taxes."

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

The Fraser Institute
Jason Clemens
Executive Vice-President
(604) 714-4591
[email protected]

The Fraser Institute
Alexander Moens
Professor of Political Science, Simon Fraser University
Senior Fellow, Fraser Institute
(778) 782-4361
[email protected]

The Fraser Institute
Dean Pelkey
Director of Communications
(604) 714-4582
[email protected]

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