Economists warn that Canada’s economy could slide into recession depending on who ends up in the White House after the US presidential election in a few weeks.
While concerns largely revolve around the impact of potential tariffs under a second Donald Trump presidency, those who spoke to Global News say a Kamala Harris administration would not necessarily be without trade challenges of its own.
The most direct impact on the Canadian economy after the election could come from Trump’s proposal to impose sweeping tariffs on all imports into the United States. While he set a minimum tariff of 10 percent for all trading partners, it was recently floated to 20 percent. While China and others may face higher amounts.
Jamie Jane, chief economist at Desjardins, tells Global News that Trump’s potential second term in office would be “more disruptive” than Harris’ regime, which he sees as largely a continuation of policies put in place under current US President Joe Biden’s administration.
Recession in the cards under Trump?
Recently, Jin and his colleagues at Desjardins conducted an analysis of Trump’s 10% tariff proposal and other announced economic policies. In those projections, Canada’s real GDP would reach 1.7 per cent by 2028, the end of a hypothetical period.
This forecast assumes at least a quarter of negative growth on the horizon for Canada, while other countries are “very weak,” says Jain. While Canada’s economy could avoid prolonged contraction in a best-case scenario under Trump, if he is elected president and doubles tariffs by 20 per cent, Gunn says an outright recession would be a foregone conclusion.
“A recession should very much be on the table if Trump is elected,” he says.
Kirsten Hillman, Canada’s ambassador to the United States, tried to allay concerns raised by Trump’s proposal, saying Washington would likely not find it possible to apply tariffs in Canada’s case.
Canadian trade with the United States is heaviest in the energy and manufacturing sectors. Jain says oil exports to the United States would be severely affected by a Republican decision, not just because of the tariffs, but because of Trump’s own plans to increase production.
He warns that increased oil supplies south of the border would, on the one hand, lead to lower prices at the pump for Canadians, but would also lead to a sharp decline in the value of Canada’s exports.
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“Certainly lower oil prices will be a good thing for consumers,” Jain says. “But for the economy and income in the economy, it will certainly have a negative impact.”
Jain notes that a more rapid economic slowdown under a Trump presidency could also lead to the Bank of Canada increasing the pace of its interest rate cutting cycle.
He says the faster cuts are likely to come despite risks to inflation in Canada from expected tariffs imposed in retaliation, as the central bank rushes to stimulate the economy.
“This would protect the shock to some extent, but not completely,” says Jin.
“No one will win the trade war.”
Trevor Tombe, an economist at the University of Calgary, also analyzed the impact of a Trump presidency on the volume of trade with Canada.
While trade between Canada and the United States makes up a much larger share of GDP north of the border, Tombe says the data can sometimes mask how important Canadian manufacturing is to the American supply chain.
He says roughly 12 per cent of everything Canada exports to the United States is actually value originally produced by American suppliers. Think of an American automaker that makes parts in Canada that will eventually be destined to trade back in the United States, for example.
“There’s a lot of value flowing across borders multiple times,” Tumbi says.
Tumbi argues that the ensuing trade war over Trump’s tariffs could “easily” put Canada into a recession, with the US economy not emerging unscathed either.
Taking into account not only potential Trump tariffs, but also global retaliation for such a shift, Tumbi sees $1,100 in lost annual income in Canadian pocketbooks and a similar impact on Americans.
“No one will win the trade war,” he says.
But Tumbi also points out that moves toward protectionism are not unique to Republicans. He notes that the Biden administration is no stranger to “America First” policies that favor domestic production, citing the long-running softwood lumber trade dispute and recent moves in favor of domestic purchases.
“There is certainly a shift in the United States toward more protectionist policy measures in both parties,” Tombe says.
“The world is becoming a more uncertain place. That’s why it’s so important that individuals, policymakers and businesses on both sides of the Canada-US border carefully consider how important this trading relationship is.”
Settle it at the negotiating table
Jane points out that Canada has been able to get exemptions from U.S. protectionist policies before, citing the renegotiated CUSMA trade agreement that helped end Trump’s aluminum and steel tariffs imposed in 2018.
Last month, Harris highlighted her opposition to replacing the North American Free Trade Agreement (NAFTA) negotiated under the Trump administration, saying it allowed major auto companies to outsource American jobs.
He says any negative impact on the Canadian economy as a result of the election will come down to how well Canada can negotiate with anyone in the Oval Office next January.
Jain says the current Democratic administration sees value in Canada as a strategic trading partner, especially when it comes as a source of critical minerals that can fuel the energy transition.
But while Canada was able to get exemptions in CUSMA, he warns that “Trump 2.0” will be more reliant on tariffs to fund his program, and may lose less politically if he takes a hardline approach.
“That’s why we’re much more worried about Trump than we are about the Harris administration,” Jain says.
If Canada is unable to strengthen its trade relationship with the United States in the near term, Tombe says there are other efficiencies to be found by looking inward. He says there are still “significant barriers” in inter-provincial trade, and governments at all levels must now focus on maintaining the flow of goods within the country.
“With increasing uncertainty abroad, I think it is very important that we strengthen the internal market, if only to insure against negative developments abroad,” says Tumbi.
– With files from The Canadian Press
