Trump's policies could push Canada into recession
7/11/2024 6:06
Donald Trump's
return to the White House next year could bring economic
pain and difficult decisions for Canada's Liberal Prime Minister
Justin Trudeau, once branded a "far left lunatic" by the
Republican.
The potential consequences include trade disputes that push
Canada into recession since 75% of its exports go to the U.S.,
as well as thousands of people pouring north across the U.S.
border, analysts and economists said.
Trump's victory adds to Trudeau's woes at a time polls show
he would likely lose to his Conservative opponent in an election
that must be held within a year. Canada's slowing economy and a
rapid surge in the cost of living over the past few years are
top campaign issues, which come against the backdrop of
diplomatic disputes with China and India that have hampered
efforts to diversify trade.
Canada, the world's No. 4 crude oil producer, is especially
vulnerable to Trump's plan for a 10% tariff on all imports and
his vow to boost U.S. energy production.
Laura Dawson of the Future Borders Coalition, which seeks to
smooth bilateral trade and travel, said the real challenge will
be gradually declining investor confidence in America's northern
neighbor.
"For Canada, four years of a Trump presidency could be very
long indeed," she said.
Trump called Trudeau "a far left lunatic" in 2022 for
requiring truck drivers crossing the border to be vaccinated
against COVID. In June 2018, Trump walked out of a G7 summit in
Quebec and blasted the Canadian leader for being "very dishonest
and weak."
Trudeau, who has been in power since 2015, congratulated
Trump on Wednesday and said the friendship between the two
nations was the envy of the world.
"I know President Trump and I will work together to create
more opportunity, prosperity, and security for both of our
nations," Trudeau said on X.
Asked about Trump's win on Wednesday, Finance Minister
Chrystia Freeland sought to reassure Canadians.
"A lot of Canadians were anxious throughout the night
and I want to say ... that Canada will be absolutely fine," she
said. "We have a strong relationship with the United States, we
have a strong relationship with President Trump and his team."
In January, however, Trudeau told reporters another Trump
presidency would be "a step back" that made life tough for
Canada.
Desjardins Economics analysts forecast Trump's policies
would result in real Canadian gross domestic product falling by
1.7% by end-2028 compared to what would have happened under a
Democratic president.
The Canadian Chamber of Commerce said Trump's planned 10%
tariff would cut Canada's real income by 0.9% annually and labor
productivity by nearly 1%. If other countries retaliate, setting
off a trade war, real income would drop by 1.5% annually, with
labor productivity falling by nearly 1.6% each year, the chamber
said.
Trump first took office in 2017 vowing to renegotiate the
North American Free Trade Agreement, the trilateral trade deal
with Mexico and Canada, complaining that trading partners were
taking advantage of the U.S.
After 18 months of sometimes rancorous talks, which at one
point saw the United States and Canada imposing sanctions on
each other's products, the pact was reborn as the
U.S.-Mexico-Canada (USMCA) deal.
Trump said on Oct. 11 he would use an existing USMCA clause
to start renegotiating the treaty in 2026.
"I'm going to have a lot of fun," he said.
RECESSION INDUCING
David Doyle, Macquarie's head of economics for the Americas,
said Trump's promised policies had the potential to be a
significant economic shock for Canada.
"It's possible that it is a recession-inducing event because
it's on such an enormous scale that we really haven't seen for
almost 100 years," he said.
Canada staved off the worst during the USMCA talks by
proactively sending officials and politicians to dozens of U.S.
states to highlight the benefits of free trade.
Kirsten Hillman, the long-serving Canadian ambassador in
Washington, said Canada has "a very good ability to push back"
on the 10% tariff proposal and had already been talking to
Trump's camp about it.
"We've been spending a lot of time talking to the Trump
team, his advisers, saying ... this just isn't the right move,"
she told the Canadian Broadcasting Corp. in mid-October.
Liberal officials are careful not to say anything derogatory
in public about the Republican leader.
But in January, Trudeau told a meeting of senior Liberals
that a second Trump administration would be of "a magnitude more
challenging" for Canada than the first, according to a source
who was present in the room.
Policy clashes seem inevitable, both domestically and
internationally, especially if Trump follows through on his plan
to deport millions of people living in the U.S. illegally.
"I predict you're going to have a huge flood north of many
of those folks trying their chances here," said Jason Kenney,
former immigration minister in the Conservative government that
ruled from 2006 to 2015.
"We could have a true crisis in terms of homelessness and
pressure on our social system just months away," he told a
podcast organized by the National Post before the election.
The United States and Europe could well retreat into hostile
competing blocs, stranding Canada in the middle, said Kim
Richard Nossal, professor of politics at Queen's University in
Kingston and author of a book on Canada's likely isolation if
Trump's movement were to regain power.
"The implications for Canada are, in my view, dramatic," he
said, predicting Trump would insist Ottawa spend far more on
defense.
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