What a Donald Trump victory would mean for Canada’s economy

Donald Trump’s return to the White House would have profound effects outside the United States, and Canada, its biggest trade partner, would feel them more quickly and acutely than perhaps anywhere else.

Before the election Donald Trump mused about across-the-board tariffs of 10 or 20 percent, or even more. Economic forecasts suggest they would take a big bite out of Canada’s economy, where nearly four out of five exports are U.S.-bound.

Donald Trump’s advisors also suggest he will once again demand that countries, especially Canada, start investing in defence and meeting NATO commitments with a two-percent of GDP spending target. In Trump’s estimation, Canada has been a major laggard in this area.

Here’s what Canada could expect and what it should pay attention to in the event of a Trump victory this week:

On trade

Canadians should be “quite anxious” about the Canada-U.S. relationship, said Steve Verheul, Canada’s chief negotiator the last time Donald Trump decided to rewrite NAFTA. “[Trump] is very attracted to the notion of what tariffs can do,” explained Verheul on PPF’s podcast WONK recently. “And clearly that that means a significant threat if he’s actually going to follow through on those promises.”

Canada faces “ugly choices,” he said. After all, 78 percent of Canadian exports go to the U.S. The main option is trying to get an exemption from U.S. tariffs. But it comes at a steep price.

“That would certainly improve our access to the US market,” said Verheul. “We could operate probably more or less normally, but we would also probably have to adopt the same tariffs that Trump is imposing against all other countries in the same way. Because otherwise if we lift our external tariffs to the rest of the world the way they are now, then products would come into Canada and then through Canada into the U.S. going through the back door, which I don’t think the U.S. would find sustainable. So I think the expectation on the U.S. side would be that we would have to follow them down that track of across-the-board tariffs, which obviously creates broad implications for our trade relations with the rest of the world.”

Janice Stein, the Founding Director of the Munk School of Global Affairs & Public Policy, laid out the stakes succinctly on PPF’s podcast WONK: “Canada is the most dependent country in the world on a single export market. There is no country that sells 78 percent of all its exports to one market, not even Germany in the European Union. Now that just clarifies the mind. If Donald Trump goes ahead … [with a] 10 percent tariff on all exports to the United States from Canada, we would be in a recession. There’s no question. We would be in a recession.”

Several economic analysts prepared reports on what Trump tariffs will do to the Canadian economy. Here are some of the best forecasts:

• Scotiabank concluded in April that Donald Trump’s minimum 10-percent tariff and his other economic policies would lower Canada’s GDP by 3.6 percent at the peak, compared to a base assumption of a Democratic victory, as well as raise inflation by 1.7 percentage points and drive up interest rates by 190 basis points. Jean-François Perrault, chief economist at Scotiabank, says he would likely issue a more negative report now since Trump is lately talking about tariffs of 20 percent.
• In a final pre-election warning about the negative impact of a minimum 10-percent tariff, TD Economics said real GDP could fall around 2.4 percentage points over two years relative to baseline projections.
• BMO Economics did not attach numbers to its assessment in June, but said Donald Trump’s policies would raise inflationary pressures and force Canada to align its tariffs with the U.S.
• The Business Development Bank of Canada assessed the impact in July and said it would lower Canada’s GDP by 0.3 percent in the first year, cost this country $7 billion and result in 20,000 lost jobs.
• CIBC Capital Markets said in September that the risk to Canada from a Donald Trump presidency is much higher than from a Harris administration. But it cautioned that an all-out trade war under Trump is “less likely to be the end goal for American policy” because it would be so damaging to the U.S. itself.
• Oxford Economics concluded Trump’s tariffs would reduce Canada’s GDP by 0.9 percent by 2029 and raise interest rates by 125 basis points by early 2026.
• The Peterson Institute for International Economics estimated the hit to Canada at a relatively modest 0.4 percent of GDP.
• Desjardins financial group warned on Oct. 7 of a “Trump Slump” if the Republican candidate wins. Canada’s GDP could be reduced by as much as 1.7 percent by the end of 2028, compared to a base case of a Harris win.
• The Canadian Chamber of Commerce, in a study by economist and PPF Fellow Trevor Tombe of the University of Calgary, concluded Trump’s policies would reduce this country’s GDP by between 0.9 and one percent, resulting in $30 billion in economic costs.

On defence

“People need to buckle up and get ready, because we’re going to demand that all of the democracies work together to make this world a safer place, and Canada being one of them,” said Kelly Craft, who served as U.S. Ambassador to Canada from October 2017 until 2019.

At PPF’s Fall Lecture on Canada-U.S. relations, Craft said that Donald Trump will demand that Canada start to pay its fair share for defence. “The world is on fire,” said Craft. “The way that Canada can have relevance, and I’m going to say this, as I said this years ago, is to pay their 2 percent for NATO. To step up, be part of NATO.”

“President Trump is going to look after America first,” added Craft. “He means that when he says it. If Canada is showing that they are serious about their defence budget … and that they are serious about the different chapters on trade that we may have disagreements with, then will you’ll have the best friend you’ve ever had. But President Trump feels very strongly that American taxpayers should not be carrying the majority of the burden.”

On taxes

“Trump’s scattershot tax proposals — which amount to a random set of crowd-pleasers rather than an attempt at comprehensive tax reform — could also complicate the finances of businesses competing across the border. They could force similar, competitive tax cuts in Canada and widen fiscal deficits in Ottawa,” Brett House wrote in PPF’s Canada-U.S. newsletter. House is a PPF Fellow and a professor of professional practice at Columbia Business School.

What can Canada do?

“If Donald Trump becomes president of the United States, the Canadian government has to go out and sell to the Canadian public why we should matter more to the United States,” said Janice Stein. “That is not an easy mission, but it’s really important.”

PPF’s Matter More report, written by Stein, PPF President and CEO Edward Greenspon and Munk professor Drew Fagan, laid out key areas where Canada should focus on deepening and broadening ties to its advantage, including:

Defence spending on Arctic security — an increasingly important area where the United States is eager for Canada to play a larger role and where defence spending could count to Canada’s two percent target.

And critical minerals, which are abundant in Canada and central to energy and military applications. “China controls more than 80 percent of the critical mineral trade and processing in the world,” said Greenspon at PPF’s Fall Lecture on Canada-U.S. relations. “That’s twice what OPEC controlled of oil at its height and so Western countries, the friends, are going to have to get together and become less dependent. Canada happens to be one of the great storehouses in the world of minerals. And we need to have a North America approach.”

And don’t ignore JD Vance

JD Vance “will be a key player in a Trump administration and a significant figure in the future of Anglo-American politics and political ideas,” wrote Sean Speer in PPF’s Canada-U.S. newsletter. Speer, PPF’s Senior Adviser, Strategic Competitiveness, makes three points:

“One, he’s the most sophisticated and thoughtful anti-Washington Consensus candidate in my lifetime. His heterodox political worldview takes for granted that a lot of prevailing political assumptions over the past 30 or 40 years on trade, globalization and even markets are wrong.

Two, his personal experiences as a son of a drug-addicted mother in the deindustrialized heartland gives him a unique voice in contemporary politics. Check out his recent podcast conversation with comedian and commentator Theo Vonn. Their discussion about addiction (and its auxiliary effects on kids) is more authentic and raw than anything I’ve heard from a politician on the topic.

And three, he represents a generational challenge to America’s gerontocratic politics which is needed to recentre the public conversation away from the nostalgia that dominates it.  All this to say, even if you don’t like JD Vance, you should take him seriously. This campaign has been his coming-out party into American national life. And he’s not going away any time soon.”

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