As Americans prepare for the midterm elections, could a Democratic victory change the direction of U.S. trade policy? Ivey's Andreas Schotter explains what it could mean for Canada, Canadian businesses, and the future of North American trade.
Ivey Impact: If Democrats win control of the House, Senate, or both, how much could they change or influence Trump's trade policies?
Andreas Schotter (AS): A Democratic victory would certainly complicate Trump's trade agenda. But Canadians should not confuse a change in Congress with a change in the White House. If Democrats take the House, they could challenge Trump's decisions, launch investigations, and make it harder for him to advance new legislation. Controlling the Senate would give them additional influence. Winning both chambers would create considerably more political pressure.
But here is the catch. Congress has given American presidents considerable authority over trade policy. Trump would still have several ways to impose tariffs and negotiate trade agreements without asking Congress for permission every time. Even with Democratic majorities, reversing existing policies would be difficult. Trump could veto legislation, and Democrats would need substantial Republican support to override him.
For Canada, the election could create an opportunity, but it would not deliver an immediate solution. My expectation is more political resistance to Trump's trade policies, not their sudden disappearance. And that distinction matters enormously for Canadian businesses making investment decisions today.
Ivey Impact: Could Democratic control lead to lower tariffs and better trade relations with Canada?
AS: Possibly, but not likely. I caution Canadians against expecting too much. Democrats have criticized Trump's tariffs, particularly where they increase costs for American consumers and businesses. A Democratic Congress could amplify those concerns and push for more predictable trade relations.
However, American trade policy is ultimately driven by American economic and political interests, regardless of which party controls Congress. Consider the automotive industry. American manufacturers depend heavily on Canadian parts and components. Tariffs that make those inputs more expensive can hurt American production and competitiveness. That creates a strong economic argument for reducing trade barriers.
Canada should use these connections to its advantage. Rather than simply arguing that tariffs are unfair, we need to amplify demonstrating how factually they hurt American companies, workers, and consumers.
There is also an uncomfortable reality. Some American industries benefit from protection against Canadian competition. Their political representatives, including Democrats, may have little interest in removing tariffs.
The most effective Canadian argument is not that free trade is good for Canada. It is that disrupting North American trade also hurts the United States. That is where Canada has leverage.
Ivey Impact: How could a Democratic victory affect the future of the Canada-United States-Mexico Agreement (CUSMA)?
AS: CUSMA is probably where a Democratic victory could make the biggest difference over time. The agreement provides the foundation for North American trade. Yet the ongoing review process has created uncertainty about its future. Businesses planning major investments need to know whether today's rules will still apply five or ten years from now.
A Democratic Congress could push for greater stability and a more cooperative approach to negotiations. That would be a positive notion. But we should remember that Democrats have their own demands. They want stronger labour protections, tighter enforcement of trade rules, and greater protection for American industries. These are not necessarily bad developments for Canada. Stronger North American supply chains can benefit all three countries. But the negotiations would remain difficult.
My bigger concern is the damage caused by uncertainty itself and what happens during prolonged periods of uncertainty. When companies cannot predict future market access, they postpone investments, reconsider production locations, or move operations closer to their largest customers.
The danger is that North American trade could become less integrated long before anyone formally abandons CUSMA. For Canada, preserving the agreement is important. Restoring confidence in its long-term stability is just as important.
Ivey Impact: What would a Democratic victory mean for Canadian businesses?
AS: It could improve business confidence. But I would not expect Canadian companies to suddenly change their strategies after election night. Tariffs are only one part of the problem. Businesses also face uncertainty about future regulations, investment incentives, and access to American customers.
For many Canadian firms, the United States remains their largest and most important market. That dependence creates vulnerability when American trade policy becomes unpredictable.
Here is the uncomfortable part. A Canadian company can protect its business by moving production to the United States. It may preserve its American customers and even improve its profitability. But Canada could lose the investment, jobs, and economic activity.
What is good for a Canadian multinational is not always good for the Canadian economy. That is a distinction we often overlook. A Democratic victory might reduce some uncertainty, particularly if it encourages more stable trade relations. But companies will make investment decisions based on costs, market access, and expected returns, not political goodwill. And once a company has moved production south, a change in government is unlikely to bring that investment back.
Ivey Impact: What should Canada avoid assuming about a Democratic-led Congress?
AS: The biggest mistake would be assuming that Democrats are automatically Canada's friends on trade. They may be more willing to cooperate with Canada, but they are not necessarily less protectionist.
We should remember that President Biden also pursued an ambitious American industrial policy. His administration promoted domestic manufacturing, encouraged investment in the United States, and maintained significant trade restrictions.
The political language was different. The underlying objective was familiar. Protect American jobs, strengthen American industries, and attract investment. That approach enjoys support across both parties. For Canada, this means that the challenge goes well beyond Donald Trump.
The United States is increasingly using trade and industrial policy to strengthen its domestic economy and reduce dependence on foreign suppliers. Canada may be a trusted partner, but it is also competing with the United States for factories, technology, and investment.
A Democratic Congress could make the relationship more predictable and less confrontational. That would be valuable. But Canada should not mistake a friendlier negotiating partner for one willing to put Canadian economic interests ahead of American ones. We need to negotiate accordingly.
Ivey Impact: How should Canadian companies prepare for the period after the midterms?
AS: My advice is straightforward. Do not build your strategy around the hope that American politics will solve your problems. The midterms may create opportunities, but the deeper changes in U.S. trade policy are unlikely to disappear.
Canadian businesses need to understand where they are vulnerable. How dependent are they on American customers? Which products face tariffs? Could suppliers or production locations be changed if necessary?
Diversifying beyond the United States makes sense, but we should be realistic. Finding new customers and building supply chains takes years. The European and Asian markets are not waiting with open arms for Canadian products. Companies should also be careful about rushing to move production south. That may solve an immediate tariff problem while creating new costs and risks.
I would encourage businesses to develop alternatives, strengthen relationships with American customers, and avoid irreversible investments until the policy direction becomes clearer. Waiting for political certainty is not a strategy. Preparing for several possible outcomes is. The real challenge for Canadian businesses is learning to compete in a world where access to markets can no longer be taken for granted. It is time for Canada to develop an informed and effective global strategy. That reality will remain, regardless of who wins the midterms.
Andreas Schotter is the BMO Endowed Professor of International Business at Ivey Business School. His research focuses on multinational enterprises, international strategy, digital disruption, and the future of work. He is a frequent commentator on international business and global economic developments.
