Canada is bracing for a number of economic risks with the return of Donald Trump to the White House.
Mr. Trump, who won Tuesday’s U.S. presidential election, has promised to ratchet up trade disputes, notably with hefty universal tariffs. He’s also vowed to cut corporate taxes and deport millions of undocumented workers from the U.S. – moves that would carry massive knock-on effects for other countries, but especially its northern neighbour.
On issues from migration and markets to energy and taxation, here are the Canadian implications of Mr. Trump’s victory.
Trade
Trade is a zero-sum game for Mr. Trump.
“Instead of American workers worrying about losing their jobs to foreign nations, I want foreign nations to be worried about losing their jobs to America,” he said at a recent rally in Detroit.
To that end, Mr. Trump has promised a 10-per-cent to 20-per-cent tariff on all imports into the U.S., and much steeper levies on Chinese goods, Mexican cars and other products he claims are undercutting American manufacturing. That’s a step change from industry-specific tariffs he imposed during his first stint in the White House, which included levies on Canadian steel and aluminum.
This poses a major risk to the Canadian economy. More than 70 per cent of Canada’s exports go to the U.S. – worth around $650-billion in 2023. A large amount of business investment is premised on seamless access to the much larger market to the south.
Economists have come up with a range of estimates on the potential impact. University of Calgary economist Trevor Tombe calculates that a 10-per-cent U.S. universal tariff, combined with retaliation from other countries, could shave more than $45-billion off the Canadian economy and lead to a 1.6-per-cent drop in productivity.
Desjardins economists estimate that Canada’s economy could be as much as 1.7 per cent smaller by 2028 than a baseline scenario in which Ms. Harris wins. The Bank of Nova Scotia sees a peak hit to gross domestic product of 3.6 per cent combined with inflation that is 1.7 percentage points higher than the baseline.
Mr. Trump has also said that he would reopen the United States-Mexico-Canada Agreement (USMCA), which comes up for review in 2026. “I can’t imagine that Trump would wait, regardless of what the details of the agreement say. He’s going to be talking tariff, tariff, tariff, right out of the starting gate,” said David MacNaughton, who was Canada’s ambassador to the U.S. during Mr. Trump’s first stint as president.
Markets
In recent weeks, financial markets have gone all-in on the “Trump trade,” and that reignited on Tuesday evening as it became apparent that Mr. Trump was heading for victory. U.S. Treasuries have sold off and bond yields have risen sharply. The U.S. dollar has strengthened against other currencies, including the Canadian dollar.
There are two things at play: deficits and tariffs. Given his tax-cutting agenda, Mr. Trump is likely to run large deficits. That’s already putting upward pressure on interest rates, as bond investors demand a higher premium to keep shovelling money into the U.S. Treasury.
Mr. Trump’s proposed tariffs would also be inflationary, at least in the near term, making it harder for the U.S. Federal Reserve to cut interest rates. Higher U.S. interest rates strengthen the country’s dollar vis-a-vis other currencies, while tariffs put downward pressure on the currencies of countries that are targeted.
Whatever happens will bleed north across the border. Canadian bond yields, which underpin mortgage interest rates, partly take their cue from U.S. yields. A stronger U.S. dollar – and its inverse, a weaker Canadian dollar – would make imports from the U.S. more expensive.
That said, it’s not all about the U.S. election. The Canadian economy is much weaker than the U.S. economy, and the Bank of Canada is cutting interest rates faster than the Fed. That divergence feeds Canadian dollar weakness.
Energy
Mr. Trump favours a “drill, baby, drill” philosophy: more crude oil production, lower gasoline prices, less regulation of the fossil-fuel industry and a rollback of the Biden administration’s climate-friendly policies.
But his visions of cheap gasoline may be constrained by an industry that doesn’t want prices to fall too much. U.S. benchmark crude is trading around US$70 a barrel. If those prices fell to US$60 for a lengthy period, U.S. production might plateau or even decline, said Rory Johnston, founder of the Commodity Context newsletter.
“Equity markets will punish [companies] if they go back to their freewheeling, loss-producing drilling ways,” he said last week.
Several economists have said it’s unlikely that a Trump White House would slap tariffs on Canadian oil, given Mr. Trump’s aim to lower prices. Crude is easily Canada’s largest export to the U.S. by value.
Mr. Trump also wants to scale back the Inflation Reduction Act – a landmark bill from the Biden presidency that makes big investments in clean technology – although this could receive pushback from his own party, because of the copious dollars that are flowing into Republican states.
Migration
Mr. Trump’s rhetoric is not subtle – particularly on the topic of immigration. After a Republican win, the U.S. will carry out the largest deportation operation in the country’s history, Mr. Trump has pledged.
As of last year, there were nearly 12 million undocumented residents in the U.S., according to estimates from the Center for Migration Studies, a think tank. And most of those individuals are actively working.
As such, any large-scale deportation would have sweeping effects on the U.S. economy that would likely spill into Canada. “The deportations would shrink the economy largely by reducing the number of potential workers and their demand for goods and services,” read a report from the Peterson Institute for International Economics.
Tax and competitiveness
Mr. Trump wants to slash the corporate tax rate to 15 per cent, roughly where it was in the 1930s. If his Republican Party takes control of U.S. Congress, this will likely come to pass.
Many economists see competitive pressure building on Canada over the next four years at a time when the country is having a difficult time attracting business investment. The problem for Canada is that government here has limited fiscal room to counter their efforts to boost the U.S. economy.
“In response to [U.S. President Joe] Biden’s Inflation Reduction Act, Canada had to place some very expensive, large bets on things like battery plants and other manufacturing places, and taxpayer pockets are only so deep,” said Stephen Tapp, chief economist at the Canadian Chamber of Commerce. “When you get into subsidy battles, it’s a situation where Canada is not going to win in the long run.”
Tony Stillo, head of economics for Canada at Oxford Economics, said in a recent report that Mr. Trump’s corporate-friendly measures, including the tax cut and bringing back the ability of U.S. firms to deduct research and development expenses, could “hurt Canada’s competitiveness and weigh further on Canadian business investment.”
The report estimated that if Mr. Trump wins and Republicans take Congress, non-residential investment would fall nearly 10 per cent below the firm’s baseline estimate by the end of 2029.
Growth
Over the decades Canada’s economy has generally followed the economic cycles of its largest trading partner, so it matters a lot how the U.S. economy performs over the next four years.
Yet even within Team Trump, the messaging isn’t clear. In September, Mr. Trump promised his policies would “reignite explosive economic growth.”
Meanwhile, Elon Musk, who would lead Mr. Trump’s government efficiency commission, said this week the Republican candidate’s economic agenda would create “temporary hardship.” When a user on Mr. Musk’s X platform predicted Mr. Trump’s policies would cause a “severe overreaction” in the economy and crash the stock market, before eventually creating a “healthier, sustainable economy,” Mr. Musk replied, “Sounds about right.”
Embodied in those two scenarios is the chaos and uncertainty a Trump win entails. While economists generally expect Mr. Trump’s US$7-trillion in tax cuts over the next decade to juice financial markets and provide stimulus to an already strong U.S. economy, the spillover to Canada would be limited.
“A stronger U.S. economy in general is a positive for Canada. But a stronger U.S. economy where borders have thickened and where Canadian investors are not entirely sure they’ll be able to sell into the U.S., that would be an overall net negative for business investment,” Mr. Tapp said.
