The U.S. elections results will likely impact Canadian firms and investors regardless of who wins, with some experts warning proposed tax hikes from former vice president Joe Biden and concerns over foreign investment restrictions under U.S. President Donald Trump are among the top risks.

“Taxes will have a profound effect on U.S. public equity markets and likely private equity markets too,” according to Jack Ablin, chief investment officer at Cresset Wealth Advisors.

Ablin, who also served as chief investment officer at BMO Harris Bank for almost two decades, cautions U.S. firms that have benefited from Trump’s Tax Cuts and Jobs Act of 2017 could likely see a large tax bill under Biden. 

Biden has campaigned on raising the corporate tax rate to 28 per cent from 21 per cent, taxing companies who move U.S. operations offshore, and has proposed doubling the tax rate for corporate foreign income gains to 21 per cent. He has also pledged to raise taxes on capital gains for high-net-worth individuals. 

The impact of these tax hikes could weigh on firm valuations and business sentiment, Ablin says.  However, he notes that to enact these types of measures, Biden will need a Democratic Senate.

When it comes to M&A, Curtis Cusinato, partner at the law firm Bennett Jones, who is the co-head of the mergers and acquisitions practice, believes activity in Canada will remain robust regardless of who sits in the Oval Office.

In the case of a Biden win, Cusinato anticipates heightened activity in renewable energies, while he expects consolidation in Canada’s oil-and-gas sector to continue under either candidate. 

“In terms of cross-border deals, there will probably be more activity in the private equity side, or financial buyer side,” Cusinato said, in reference to both candidates.

Private equity activity between the two countries should be healthy for the next four years, given the cost of cheap money in a low-interest rate environment, says Benjamin Tal, deputy chief economist at CIBC World Markets. 

According to the Canadian Venture Capital and Private Equity Association, private equity activity in Canada was up 33 per cent in the first half of 2020, compared to the same time last year despite the pandemic.  

However, Tal says tensions between China and the U.S. would likely continue under both Biden and Trump, which would ultimately lead to reduced diversification options for Canada in terms of private investment – and would increase the country’s dependence on the U.S.

“Ironically, no matter who wins the election, Canada’s investment reliance on the U.S. will rise, not fall,” Tal said, adding that could be offset by more activity in Europe.

For Elaine Kunda, an experienced venture capitalist who is a managing partner at Disruption Ventures, the biggest question mark for Canadian investors is what would happen with investment regulations if Trump were to stay in power.

Kunda is concerned about how the current administration will choose to move forward with tightening foreign investment into the U.S. – a threat she says Canadian investors have feared before.

“It’s almost as if having a limb chopped off for Canada if deeper investment regulations in the U.S. were to persist,” Kunda says.​