Democrats' U.S. election sweep raises hopes for easing Canadian trade pressures

The Democrats' victory in the U.S. midterm elections has raised hopes that a new Congress could limit President Donald Trump's power to impose tariffs, offering potential relief to Canadian industries. The political change in Washington may also affect global oil prices, Alberta's ambitions for artificial intelligence data centres and the upcoming review of the continental trade agreement. The election results have highlighted a diplomatic dispute between Quebec and the federal government. Quebec Premier Paul St-Pierre Plamondon said his province, which has been heavily impacted by U.S. softwood lumber tariffs, will pursue its own talks with American officials.

"I think we're in a better position to possibly find a solution because Americans have spoken, the situation has changed," St-Pierre Plamondon said. "So what we're going to do is prepare a diplomatic offensive of discussion with the Americans to see if there isn't a solution." The Parti Québécois premier recently boycotted a Canada-EU summit in Montreal after Ottawa denied him a speaking role, accusing the federal government of treating Quebec like a "vassal." Federal Trade Minister Dominic LeBlanc stated that Ottawa's approach to negotiations with Washington, which have recently restarted, remains unchanged.

Ontario Premier Doug Ford expressed enthusiasm about the U.S. election outcome, calling it a "victory for Canada." He said he plans to send provincial ministers to Washington to advocate for Ontario once the new Congress is seated. The federal government hopes these separate provincial efforts do not create confusion for American policymakers. While the new Democratic Congress can call Trump's trade officials to testify and hold votes on tariffs starting in January, any legislative action faces a high hurdle. Legislation to remove import taxes would require Trump's signature, and Democrats do not hold the two-thirds majorities in the Senate and House needed to override a presidential veto. Trump retains authority over tariff policy and ongoing trade discussions, including those concerning the United States-Mexico-Canada Agreement. Market analysts are watching to see if a politically weakened Trump seeks an exit from the U.S.-Israeli war with Iran, a conflict that has disrupted oil supplies and driven prices above US$100 a barrel for months.

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Oil prices have softened on speculation Trump may disengage from the war, though a lasting price drop would require a peace agreement. Trump has conceded the conflict hurt his party at the polls. A decline in crude prices would reduce a key source of revenue for Canada's trade balance, which has benefited from high prices since major U.S. tariffs were imposed in late August. Statistics Canada reported the national merchandise trade surplus grew to $5.4 billion in September, with the surplus with the United States reaching $12.3 billion.

Energy exports rose 8.2 percent in value due to higher prices, even though the volume of exports fell 4 percent and most other product categories saw declines. The federal budget, to be released later today, is anticipated to reflect billions in additional revenue from raised oil prices. However, Parliamentary Budget Officer Annette Ryan noted last month that new government spending commitments have already consumed that fiscal room. Finance Minister François-Philippe Champagne said the budget will prioritize affordability and cultural sovereignty while continuing efforts to build a more independent Canadian economy.

With files from The Globe and Mail