Opinion: Canadian technology companies face problems no matter who the next US president is

Teal Pennebaker is co-founder of Shallot Communication and a former employee of Amazon and the Obama administration. Thomas Park is a senior partner at the BDC Deep Tech Ventures Fund.

Over the last decade, Canada's innovation ecosystem flourished thanks to easy access to Silicon Valley. Canadian founders raised capital from leading American investors such as A16Z and Eclipse. Cross-border travel was common, Canadians formed U.S.-based teams and took on large-scale research and development projects on both sides of the border. Large American tech companies such as Google, Amazon and Apple acquired Canadian companies more often than our local conglomerates.

We fear that this easy access may soon no longer be possible for the Canadian tech sector. The political landscape in the US has been changing rapidly, and no matter which candidate wins, many founders and funds fear the impact will not be positive for Canadian startups.

As a result, there is a risk that Canadian startups will move south of the border and choose to establish their headquarters in the US rather than Canada. Given the impending re-authorization of the However, these risks could become apparent in less than 24 months as a result of the agreement between the United States, Mexico and Canada.

Some aspects of the USMCA have serious implications for the tech sector, affecting access to talent and making it easier to travel across the border. Canadian tech workers rely on Tennessee's professional nonimmigrant visa to enter and work in the U.S. for extended periods of time. Thanks to the Tennessee visa, many tech professionals (e.g. scientists) do not need to apply for work visas, which are more difficult to obtain.

Canadian tech companies need a U.S. president who is pro-immigration, since so many engineers live in both countries – and want the ability to travel between them. However, both parties oppose immigration.

There are fears that the labor market is getting tighter despite low unemployment, and both U.S. parties have adopted political rhetoric that, along the lines of “let's get tough at the border,” could be problematic for Canadian tech talent seeking to move freely between the two countries.

Another example: The USMCA allows Canadian companies to avoid tariffs on the sale of digital goods, restrictions on cross-border data transfers, or the obligation to provide access to source code as a condition of doing business in the United States.

Under a new president, much of Canada's current preferential treatment in the United States could disappear, especially as Canada is currently considering various new taxes on American technology companies.

Our innovation ecosystem is not prepared for this risk. According to the Canadian Venture Capital and Private Equity Association, venture capital investment fell by almost 30 per cent between 2022 and 2023, from $10.3 billion to $7.1 billion, a trend that is unlikely to reverse in 2024. This means startups will have fewer resources and less time to adapt.

And as an organisation for economic cooperation and development further points out that Canadian companies still lag behind comparable countries in their investment in research and development, making the domestic market an unviable option for startups hoping to achieve significant revenue growth.

What can be done?

First, the Canadian ecosystem needs to know exactly which sections of the USMCA are critical to each company and prepare for drastic changes. Many things that founders take for granted could be at risk, such as duty-free sales of software or frequent visa-free travel across the border for senior management.

Second, our founders and investors need to adapt not only to an environment with scarce capital and open-source AI platforms, but also to one that takes into account the more difficult access to the US market. We can point to many examples abroad where technology companies expanded globally. We need to learn from other ecosystems, such as those in Korea, the UK and Israel, that have strong traction in the US market despite not having the same access as Canada.

Finally, Canadian founders should start exploring other markets outside the US. We host dozens of Japanese and Korean conglomerates eager to collaborate with our startups. While the US market is the largest tech scene, it is not the only one.

The post-pandemic situation has hit the Canadian ecosystem hard and things are likely to get worse after November. At least we have time to prepare.