Recession ‘on the table’ for Canada in a 2nd Trump term, economists warn – National

Canada’s economy could tip into recession depending on who ends up in the White House after the United States’ presidential election in just a few weeks’ time, economists warn.

While fears largely circle 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 its own trade challenges.

The most direct impact to Canada’s economy post-election could come from Trump’s proposal for blanket tariffs on all imports to the U.S. While he’s set a minimum of 10 per cent tariffs for all trading partners, he’s recently floated going as high as 20 per cent, while China and others could be facing even higher amounts.

Desjardins chief economist Jimmy Jean tells global News that Trump’s potential second term in office would be “much more disruptive” than a Harris regime, which he views as largely a continuation of policies set under the current U.S. President Joe Biden’s administration.

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Jean and his colleagues at Desjardins recently undertook an analysis of Trump’s 10 per cent tariff proposal and other stated economic policies. In that forecast, Canada’s real gross domestic product takes a 1.7 per cent hit by 2028, the end of a hypothetical term.

That outlook assumes at least one quarter of negative growth on the horizon for Canada, with others being “very weak,” Jean says. While the Canadian economy could skirt a prolonged contraction in a best-case scenario under Trump, if he is elected president and doubles down with tariffs of 20 per cent, Jean argues an outright recession would be a given.

“Recession would be very much on the table, presumably, if Trump were to be elected,” he says.

Kirsten Hillman, the Canadian ambassador to the U.S., has tried to ease fears stoked by Trump’s proposal, saying that Washington would likely not find it feasible to apply the tariffs in Canada’s case.

Canadian trade with the U.S. is heaviest in the energy and manufacturing sectors. Oil exports to the U.S. would be heavily impacted by a Republican, not only because of tariffs, but because of Trump’s own plans to ramp up production, Jean says.

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An uptick in oil supply south of the border would, on one hand, drive down prices at the pumps for Canadians, but would also severely lower the value of Canada’s own exports, he warns.

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“Lower oil prices would certainly be a good thing for consumers,” Jean says. “But for the economy and for incomes in the economy, surely it would have a negative effect.”

A more rapid economic slowdown under a Trump presidency could also see the Bank of Canada pick up the pace in its interest rate cut cycle, Jean notes.

Faster cuts would likely come despite risks to inflation in Canada from anticipated tariffs levied in retaliation, he argues, as the central bank hastens to stimulate the economy.

“That would shield the shock to some extent, but not fully,” Jean says.

Trevor Tombe, economist with the University of Calgary, also analyzed the impact of a Trump presidency on trade volumes with Canada.

While trade volumes between Canada and the U.S. are a much larger share of GDP north of the border, Tombe finds that the data can sometimes mask how important Canadian manufacturing is to the U.S. supply chain.

Roughly 12 per cent of everything Canada exports to the U.S. is actually value originally produced by American suppliers, he says. Think of an American automotive manufacturer making parts in Canada that are ultimately destined for trade back in the U.S., he gives as an example.

“There’s a lot of value that’s flowing across the border multiple times,” Tombe says.

The ensuing trade war from Trump’s tariffs could “easily” put Canada into a recession, with the U.S. economy not getting away unscathed either, Tombe argues.

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Taking into account not only Trump’s possible tariffs, but also the global retaliation to such a shift, Tombe sees $1,100 in foregone annual income in Canadian pocketbooks and a similar impact for Americans.

“Nobody’s going to win in a trade war,” he says.

But Tombe also notes that moves towards protectionism are not exclusively the domain of the Republicans. The Biden administration is no stranger to America-first policies that favour domestic production, he notes, citing the long-running softwood lumber trade dispute and more recent moves to favour domestic procurement.

“There’s certainly a turn in the U.S. towards more protectionist policy measures in both parties,” Tombe says.

“The world has become a more uncertain place. And so it is very important that individuals, policymakers, businesses on both sides of the Canada-U.S border really do think carefully about how important this trading relationship is.”

Jean notes that Canada has been able to carve out exemptions from protectionist U.S. policies before, citing the renegotiated CUSMA trade deal that helped end Trump’s tariffs on aluminum and steel imposed in 2018.

Last month Harris highlighted her opposition to the NAFTA replacement that was negotiated under the Trump administration, saying it allowed major auto companies to outsource American jobs.

Any negative impact to Canada’s economy as a result of the election will come down to how well Canada can negotiate with whomever is in the Oval Office come January, he says.

Jean says that the current Democratic administration sees the value in Canada as a strategic trading partner, particularly when it comes as a source of critical minerals that can fuel the energy transition.

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But while Canada was able to carve out exemptions in CUSMA, he warns that “Trump 2.0” will be more reliant on tariffs to fund his platform, and may have less to lose politically with a hard-nosed approach.

“That’s why we’re much more worried about Trump than we are about the Harris administration,” Jean says.

If Canada is unable to bolster its trade relationship with the U.S. in the near term, Tombe says there are other efficiencies to be found looking inward. There are still “considerable barriers” in trade between provinces, he says, and governments of all levels ought to focus now on keeping goods flowing within the country.

“And with rising uncertainty abroad, I think it’s much more important that we strengthen the internal market, if only as just insurance against adverse developments abroad,” Tombe says.

— with files from The Canadian Press