Trump’s victory sparks concerns over ripple effect on Canadian economy

Donald Trump’s impending return to the White House has cast a spotlight on Canada-U.S. economic ties, as some worry the president-elect’s protectionist stance could complicate the vast levels of trade between the two countries.

Some Canadian business leaders have expressed uneasiness over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

The campaign promise on tariffs comes ahead of talks set to take place about the Canada-United States-Mexico Agreement, which came into effect in 2020 under the previous Trump presidency.

The deal is up for review in 2026 and Trump has vowed to renegotiate it.

American economists have warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

More than 77 per cent of Canadian exports go to the U.S.

There was a total of more than $960.9 billion in trade between Canada and the U.S. in 2022, accounting for close to two-thirds of the more than $1.5 trillion in worldwide trade that year, according to Statistics Canada.

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

But he said there’s hope that Canada could avoid the worst-case scenario based on lessons learned from Trump’s first term, when he frequently threatened tariffs on Canada that didn’t materialize and “those that did were more targeted than feared.”

Ercolao said the 25 per cent tariff on steel and 10 per cent levy on Canadian aluminum imports imposed in 2018 had “localized industry impacts but only modest macro effects.”

Beth Burke, chief executive of the Canadian American Business Council, said she was optimistic the strong economic relationship between the two countries would continue, especially given that both sides have previously navigated free trade talks during the last Trump presidency.

“Obviously there are challenges. The talks of tariffs is something that we don’t support and we aren’t excited about. We don’t think that’s a road where anyone really wins,” she said.

“But we’ve seen this before. We’ve lived through a Trump and Trudeau partnership navigating steel and aluminum tariffs and what happened is we got to the right answer, ultimately.”

Since the Canada-United States-Mexico Agreement came into effect four years ago, trade between Canada and the U.S. has surged 46 per cent, according to the Toronto Region Board of Trade.

Canadian Chamber of Commerce president and CEO Candace Laing said the federal government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

The chamber report last month noted many provinces rely on trade with the U.S. to fuel their economies. In New Brunswick, U.S. trade accounts for 62 per cent of the provincial economy, followed by Manitoba and Alberta at 42 per cent, Ontario at 41 per cent and Quebec at 23 per cent.

It said several U.S. state economies are also “surprisingly dependent” on Canadian trade, led by Montana, where trade with Canada accounts for 16 per cent of the state economy, followed by Michigan at 14 per cent and Illinois at 10 per cent.

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” Laing said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

Sammy Hudes, The Canadian Press