Economists warn that Canada’s economy could tip into recession depending on the outcome of the United States presidential election, with fears largely focusing on the potential impact of tariffs under a second Trump presidency. While a Trump administration would likely be more disruptive, a Harris administration would not be without its own trade challenges. Trump’s proposal for blanket tariffs on all imports to the U.S. could have a direct impact on Canada’s economy, with potentially disastrous consequences if tariffs were increased to 20 percent.
The Canadian ambassador to the U.S. has tried to ease fears of potential tariffs, stating that Washington would likely not apply tariffs to Canada. However, Canadian trade with the U.S. in sectors such as energy and manufacturing could be heavily impacted by a Republican administration due to both tariffs and increased oil production. Lower oil prices would benefit consumers but could have a negative effect on the overall economy and incomes in Canada. A faster economic slowdown under a Trump presidency could lead the Bank of Canada to accelerate its interest rate cuts to stimulate the economy despite risks to inflation.
An economist from the University of Calgary analyzed the impact of a Trump presidency on trade volumes between Canada and the U.S., highlighting the importance of Canadian manufacturing to the U.S. supply chain. The ensuing trade war from potential tariffs could easily put Canada into a recession, with both countries experiencing financial losses. Moves towards protectionism are not exclusive to the Republicans, as the Biden administration has also shown signs of favoring domestic production in the past. It is crucial for Canada to negotiate effectively with whomever is in the White House come January to mitigate any negative impact on its economy.
While Canada has been able to negotiate exemptions from protectionist policies in the past, economists warn that a potential “Trump 2.0” administration may rely more heavily on tariffs to fund its platform. Canada’s ability to strengthen its trade relationship with the U.S. will be crucial, but there are also opportunities to improve internal trade within the country to guard against adverse developments abroad. It is important for policymakers, businesses, and individuals on both sides of the Canada-U.S. border to carefully consider the significance of the trading relationship and work towards securing economic stability in the face of potential challenges.
