From right: Prime Minister Justin Trudeau, Foreign Affairs Minister Chrystia Freeland, United States Trade Representative Robert Lighthizer, U.S. President Donald Trump, Mexico's Secretary of Economy Ildefonso Guajardo Villarreal, and President of Mexico Enrique Pena Nieto participate in a signing ceremony for the new United States-Mexico-Canada Agreement in Buenos Aires, Argentina, in November, 2018.Sean Kilpatrick/The Canadian Press
Canada’s economy could face major headwinds from the second election of Donald Trump as U.S. president, with the threat of trade wars, tariffs and a bruising renegotiation of North America’s free-trade agreement all expected to stifle Canadian exports and dampen business investment on this side of the border.
Mr. Trump campaigned on a protectionist platform, promising a 10-per-cent to 20-per-cent universal tariff on all imports to the United States, and much steeper levies on Chinese goods and other products he claims are undercutting U.S. manufacturing.
This risks sparking an international trade war, with tit-for-tat retaliation from other countries. And it poses a huge risk to Canada’s trade-dependent economy, which sends more than 70 per cent of its exports to the U.S. – worth about $650-billion in 2023.
Mr. Trump is also promising to run the U.S. economy hot, with deeper corporate tax cuts and a push for deregulation. Combined with tariffs, that could fuel inflation and increase global borrowing costs, which take their cue from U.S. interest rates.
Companies “have to be ready for chaos and the unpredictable,” said Jesse Goldman, a partner at the law firm Osler, Hoskin & Harcourt LLP who focuses on trade issues.
“This is very much going to be about America alone. Not only just America First, but America alone. And there doesn’t seem to be any favour that is going to be given to Canada at this point.”
In some ways, Canada has been through this before. After Mr. Trump was elected in 2016, he slapped 25-per-cent tariffs on Canadian steel and aluminum and threatened to rip up the North American free-trade agreement (NAFTA). Canada and Mexico managed to salvage much of the trade agreement, which became the United States-Mexico-Canada Agreement (USMCA) that took effect in 2020.
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This time around, a lot will depend on who is advising Mr. Trump on trade and other economic issues, said Stuart Bergman, chief economist at Export Development Canada (EDC).
“It really depends on what kind of a Trump administration we get. Is it a Trump 45 repeat? Or is it more of a Trump unchained?” Mr. Bergman said, referring to Mr. Trump’s previous presidency.
Control over the House of Representatives remains up in the air following Tuesday’s election. Even without Congress, the U.S. president can impose a range of tariffs on national security grounds, which would allow Mr. Trump to move quickly after his inauguration on Jan. 20. If he does push forward with across-the-board tariffs, the impact on the Canadian economy could be devastating.
University of Calgary economist Trevor Tombe estimated in a recent report that a 10-per-cent 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 have calculated that Canada’s economy could be as much as 1.7 per cent smaller by 2028, compared to a baseline scenario where Kamala Harris won the presidency.
In addition to tariffs, Mr. Trump has said he will reopen the USMCA when it comes up for review in 2026. Although most of his complaints about the trade agreement have focused on Mexican cars and the possibility that China is shipping goods through Mexico to skirt American tariffs, the U.S. is also likely to push for more access to Canada’s supply-managed agriculture sectors and for rules of origin that favour American automakers to the detriment of manufacturers in Canada and Mexico, Mr. Goldman said.
“I just think all of the uncertainty around the future of the USMCA and the rules of origin are going to have a pretty profound chilling effect on that type of investment coming into Canada, particularly for manufacturing,” he said.
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Finance Minister Chrystia Freeland played down the risk of tariffs and the USMCA renegotiation and played up Canada’s relationship with Mr. Trump’s team in a press conference on Wednesday. The Canadian government “knew this outcome was possible” and was prepared for it, she said.
In an effort to show alignment with the incoming Trump administration, she said Canada and the U.S. are on the same page when it comes to concerns about unfair Chinese overcapacity, which led to Ottawa’s imposition last month of tariffs on Chinese electric vehicles and steel and aluminum.
Matthew Holmes, senior vice-president of policy and government relations at the Canadian Chamber of Commerce, said that Canada needs to step up on a range of issues if it wants to maintain favourable access to U.S. markets. That means spending more on the military to meet Canada’s NATO commitments, emphasizing Arctic defence and working with the Americans to address the issue of mass migration from Latin American and Caribbean countries.
“If we’re not a partner for them, then we don’t have a hope of starting a trade discussion,” Mr. Holmes said.
The results of Tuesday’s election will reverberate across Canadian industries from energy to auto-manufacturing to financial services.
Mr. Trump promised to increase U.S. oil production, which could push down global prices to the detriment of Canadian energy producers. That said, the declining quality of reserves in U.S. shale fields makes a sudden uptick in production unlikely, and the decision whether to crank up production will ultimately fall to businesses, not Mr. Trump, said Eric Nuttall, a partner and senior portfolio manager with Ninepoint Partners LP.
Canadian auto parts suppliers, meanwhile, are reacting to Mr. Trump’s victory with a mix of unease and hope.
With hundreds of plants in Mexico and the U.S., Canadian parts companies must convince U.S. officials that tariffs could cut off investment and hurt America, said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association.
But while Mr. Trump has been harshly critical of investments in the electric-vehicle sector, which has been a boon for parts makers, Mr. Volpe questioned Mr. Trump’s pledge to pull back from the EV transition because “he and the people around him are concerned with ceding ground to the Chinese.”
When it comes to the USMCA renewal, Canada needs to take a Team Canada approach, as it did during the NAFTA replacement talks in 2018, said Dennis Darby, CEO of the Canadian Manufacturers & Exporters trade group. That means industry and government will need to co-ordinate their appeal to America’s leadership on economic, energy and supply chain security grounds.
“Canada will have to pick a lane and be unequivocal in promoting North America and that may put us at odds with other trading partners,” he said. “Mr. Trump is always about making a deal and this is how we can do that.”
Cody Slater, CEO of Blackline Safety Corp., a Calgary-based maker of portable safety devices monitors, said Mr. Trump’s tariffs, if enacted, could force his company to shift some of its production from Calgary to the U.S. years sooner that it might have otherwise planned. Doing so now “is not something we’d like to do so I don’t look at it as positive from a business standpoint,” he said in an interview.
While risks to Canada’s economy and businesses abound, there are opportunities as well, said Mr. Bergman of EDC. A strong U.S. economy juiced by tax cuts usually increases demand for Canadian exports. And a stronger U.S. dollar – and its inverse, a weaker Canadian dollar – should make Canadian exports more competitive.
“That takes a little bit of the sting away from the negative impact of what would come from tariffs,” he said.
With reports from Emma Graney and Sean Silcoff