Economist at the Montreal Economic Institute
In a recent Globe and Mail op-ed, Laura Jones, chief strategic officer for the Canadian Federation of Independent Business, stated that “U.S. President Donald Trump’s much ballyhooed red-tape cutting isn’t much more than fake news, as the number of federal regulatory restrictions increased during his first year in office.”
Yet despite the admittedly slow start, what’s going on south of the border is very real. While my organization and I have been critical of some of the Trump administration’s policies, here in these pages and elsewhere, it is important to be very clear about what it means for our competitiveness and general business attractiveness. To put it simply, deregulation in the United States is not fake news and Canadian authorities need to respond.
To be clear, as Ms. Jones also detailed in her article, Canada has been a pioneer in terms of reducing the regulatory burden put on business. Efforts such as those initiated by the government of British Columbia in 2001, where 37 per cent of the regulatory burden was eliminated within three years, have been emulated across Canada at both the provincial and federal level, albeit with varying levels of success. And Canada was the first country to introduce a one-for-one rule in 2012, whereby for every new regulation that imposes a burden on business, one rule must be removed.
But the change happening in the United States is nonetheless very real. According to the Brookings Institution’s deregulation tracker, 36 regulations have been repealed by the Trump administration, 13 regulations are currently being delayed, possibly indefinitely, and four regulations implemented by the previous administration have been partly amended. While withdrawing rules before they apply might not count as deregulation strictly speaking, it nevertheless reduces the American regulatory burden for the years to come.
To see why deregulation is a slow process, and why a single administration cannot simply and swiftly undo mountains of regulation overnight, one must understand the regulatory process. In the United States, in order to repeal a regulation, the relevant agency must issue a new regulation, conduct a thorough cost-benefit analysis and sometimes solicit public input. This process, similar to our own, can take a year or two even when things go smoothly. When there are administrative hoops to jump through and legal challenges, as has been the case for virtually all of Mr. Trump’s deregulation efforts, it can take much longer.
Among the rules that are being fought, many affect the energy sector. An easing of the greenhouse gas emissions standards that are adding thousands of dollars to the price of new vehicles is currently being considered. So is replacing a piece of legislation that would have made energy bills much more costly, with barely any greenhouse gas emission benefits, and rolling back emission standards for coal power plants that would cause the price of electricity to surge, yet are wholly unnecessary given that it is now more expensive to keep coal plants running than to set up new, cleaner energy sources. A revision of the protection of the greater sage grouse bird will also affect oil drilling, and may in the future attract investment to the United States instead of Canada.
These are significant regulatory changes, which anyone would agree will reduce the American regulatory burden. And the United States is becoming much more welcoming to energy investment, while Canada has been making headlines with cancelled energy infrastructure projects and a more burdensome environmental review process.
It is true that the Trump administration is not solely responsible for deregulation. Especially during Mr. Trump’s first year in office, some deregulatory action was initiated under his predescessor Barack Obama, and the Republican-dominated Congress also used the Congressional Review Act to counter some regulation.
In fact, there are two components to reducing the regulatory burden. The first is getting rid of the cumbersome rules and red tape on the books. This is a long and uncertain process that would certainly not be expected to have had an impact on the number of rules active in an administration’s first year.
The second, just as important, is slowing down the regulatory machine. In its first year in office, the Trump administration issued just four economically significant regulations, compared with 83 issued by the Obama administration in its final year in office. This is not a net decrease yet, and it may never be, but it’s a stark reduction in the growth rate of the regulatory burden.
While the Trump administration is far from perfect, its domestic economic policies have generally been wealth-creating. Denying its efforts to reduce the regulatory burden won’t do anything to protect Canada’s competitiveness and its attractiveness to business investment.