Disclaimer - This article was written before the events of November 25-26th, 2024.

Montreal, November 27 - On January 20, 2025, Donald Trump will be sworn in as the 47th President of the United States, marking the start of a second term that is already sparking debate. As Canada�s closest neighbour and largest trading partner, the importance of his policies on the economic landscape cannot be overstated. Trump�s staunch belief in protectionism as a path to economic growth, promising to stunt inflation, attract businesses back to the United States, and create more jobs stands in contrast to the global trend favouring free trade. Economists warn that Trump�s approach could send shockwaves through international trade, with Canada feeling the brunt of the impact. This journalist aims to delve into how this new chapter in United States leadership could transform life in Canada.

What is Protectionism?

The Cambridge English Dictionary defines protectionism as �the actions of a government to help its country's trade or industry by taxing goods bought from other countries� (Cambridge). An example of protectionism in Canada is the period of 1815 to 1846 when the country was still considered a British colony. After Napoleon�s continental blockade, the British Empire practiced protectionism by imposing preferential tariffs on several raw materials, notably timber. The tariffs encouraged inter-colonial trade, meaning there were lower import tariffs if the goods came from another colony. Conversely, companies were less and less likely to buy from a country separate from the Empire, as customs duties would be higher. These measures were abolished in the 1840s upon the advent of free trade. 

The principle still applies today. Canada still imposes import tariffs under the Customs Tariff Act. However, Canada has signed 15 economic agreements to promote free trade, including the CETA (Comprehensive Economic Trade Agreement), the CTPGP (Comprehensive and Progressive Trans-Pacific Partnership Agreement) and the CMEA (Canada-US-Mexico Agreement). Under these agreements, member countries plan to trade as much as possible to specialize in one area and consume from another to offer the lowest prices to their citizens. For example, in the Canada-United States-Mexico Agreement (CUSMA), the three member countries can import clothing from each other with almost no tariffs, whereas a country outside the agreement could pay between 12% and 18% tariffs. This directly impacts the selling price since the costs of production factors are higher.

A customs tariff hinders international trade in favour of domestic trade. It allows a country to increase production in sectors that are not necessarily developed and makes the prices of local companies more competitive compared with the prices of products created from imported raw materials and, therefore, subject to tariffs. 

What are the Trump administration�s economic priorities?

When Donald Trump returns to the Oval Office, he plans to increase tariffs on everything that enters the country to protect American companies, encourage foreign companies to relocate to the United States, and encourage local consumption. This increase could be more than 60% for China and between 10% and 20% for the rest of the world. In his view, these measures could create a leverage effect to dissuade companies from leaving the country. To offset the risk of price inflation, Trump will cut taxes from 21% to 15%, stimulating investment in developing new companies.

Despite this, many economists� estimates belie the benefits of Trump�s radical measures. In a letter signed by 16 Nobel Prize winners in economics, they warn Americans of the risks associated with a second term for Donald Trump. 

Many Americans are concerned about inflation, which has slowed remarkably. There is rightly a worry that Donald Trump will reignite this inflation with his fiscally irresponsible budgets. Nonpartisan researchers, including at Evercore, Allianz, Oxford Economics, and the Peterson Institute, predict that inflation will increase if Donald Trump successfully enacts his agenda, with these repercussions potentially lasting years. A study by the Peterson Institute for International Economics estimates that inflation could rise to between 6% and 9.2% in 2026.

Following the COVID-19 pandemic, the Federal Reserve faced challenges in controlling inflation, initially raising the key interest rate and then gradually lowering it. As of today, the Peterson Institute projects inflation to be at 1.6% ahead of the election. The Reserve�s actions have been heavily criticized by the 47th President of the United States, who argues that the head of state and a successful businessperson should have a say in monetary policy. The President has even threatened to remove Jerome Powell, Chairman of the Federal Reserve�s Board of Governors, from his position.

In an interview with the editor-in-chief of Bloomberg and the Economic Club of Chicago, the next President emphasized that raising the interest rate would help reduce the national debt, preserve existing jobs, and create thousands of new ones. However, the same study projects a decline in average GDP growth of 2.8% to 9.7% between 2025 and 2040, along with a decrease in the employment rate of 2.7% to 9% by 2028. Additionally, estimates from the Committee for a Responsible Federal Budget, a nonpartisan, nonprofit organization, suggest that Trump�s proposed policies would increase the national debt by $7.5 trillion. The risk of job losses in the United States is significant, as 40 million jobs, representing 27% of GDP, are directly tied to international trade.

Effect of Tariffs on SMEs and Prices

As previously noted, the CUSMA is a crucial economic agreement among Canada, the United States, and Mexico. Since its implementation, trade between these three countries has increased by 46% since 2020, according to the Toronto Region Board of Trade. This agreement has been beneficial for Canadian SMEs, granting them access to the American market while keeping their prices competitive with U.S. companies, and vice versa. The U.S. market accounts for more than 77% of Canada�s global exports and 75% of Quebec�s. Additionally, Statistics Canada estimated that economic exchanges between Canada and the United States reached $960.9 million in 2022.

However, National Bank economist Angelos Katsoras warns that the imposition of 10-20% tariffs could lead to a 5% decline in Canadian exports to the U.S. by 2027. If Canada counters with counter-tariffs, costs for Canadian producers will also rise, reducing imports. Trevor Tombe, an economics professor at the University of Calgary, estimates that this would result in an average income loss of $1,100 per citizen annually, totalling $45 billion across Canada. Trade with the U.S. is vital to many provincial economies, representing 62% of New Brunswick�s, 42% of Manitoba�s and Alberta�s, 41% of Ontario�s, and 23% of Quebec�s.

A report from the Canadian Chamber of Commerce, published before the presidential election, projected that Donald Trump�s proposed policies could reduce Canada�s economy by $30 billion annually, affecting 2.4 million jobs in industries such as energy, motor vehicles, transportation equipment, and chemicals. Additionally, it predicted a 2.4% decline in GDP growth over two years compared to TD Bank�s projections.

The energy and automotive industries will be the most affected, accounting for $170 billion (30%) and $80 billion in U.S. exports, respectively. The introduction of tariffs in 2019, 25% on steel and 10% on aluminum which had a significant impact on the steel and aluminum industries. The Canadian government implemented a dollar-for-dollar retaliatory policy. Steel exports, totalling 6 million tonnes and valued at $11 billion annually, were particularly hard hit, with steel prices rising by an average of 2.6% and aluminum costs increasing by 1.4%, according to the U.S. International Trade Commission. Economists Lydia Cox and Kadee Russ estimate that these tariffs led to a loss of 75,000 jobs in the United States across these two sectors.

In terms of energy, there is a high likelihood that this industry will be exempt from the tariffs, as the United States relies heavily on Canadian oil and gas. According to Heather Exner-Pirot, special advisor to the Canadian Business Council, the future president �could not replace oil from Canada unless he imported it from elsewhere� (Exner-Pirot). Donald Trump has already approved the Keystone XL pipeline in Western Canada. It can be assumed that he will do nothing to slow down production in this sector.

(Quotes translated from French to English)

The same stability cannot be guaranteed for the electricity sector. When considering Donald Trump's suggested tax cuts for American companies, the question arises as to whether this will affect the energy industry. With U.S. corporate tax rates potentially dropping below Canada�s rates of 26.5% to 31%, it is plausible that his strategy could succeed, prompting Canadian companies to consider relocating operations further south.

Many companies thus are finding new ways to adapt to these news systems. Locweld, a company that builds electricity pylons to transport electricity to the United States, are considering building plants in the United States to avoid paying aluminum taxes. If taxed 10%, its American customers will have to pay more, thus reducing their competitiveness in the market. According to Jean Simard of the Aluminium Association of Canada, the profits of companies like Locweld are bound to fall, given that 92% of Canadian aluminum production is exported to the US.

Trevor Tombe�s analysis of the automotive industry shows that globalization has closely linked production chains, and it is not uncommon for products to cross the border several times before becoming a finished product, particularly in this sector. For example, imposing tariffs on car components would be extremely difficult for the Trump administration because American industries would suffer, which could be positive for Canada.

Within the forestry industry in Quebec, companies are already having difficulty preparing to cut production by closing plants and sawmills. The United States has already imposed a 14.54% tax on softwood lumber, and companies fear that the tax will rise to 30%. �tienne V�zina, Domtar�s Director of Forestry, reports that mills and sawmills are already being closed with the current tariff. Between now and the holiday season, Domtar will have to shut down one sawmill in the Mauricie region and one in the Outaouais region, affecting 500 workers. 

Currently, there are many strategies for absorbing the effects of the tariffs, but they are still speculative. The Duchesnay Group, a pharmaceutical company, plans to produce a year�s worth of medicines and ship them to their American warehouses before Trump enters office. Some companies will relocate, and others will develop and modernize their equipment to reduce production costs. Above all, they hope that the government will succeed in exempting Canada from tariffs with the support of American customers.

Inflation and its Effect on the US Dollar

This spells trouble for Canada, which is just starting to recover from post-pandemic inflation. In October, the Bank of Canada lowered its key interest rate from 5% to 3.75%. This can be counteracted by higher tariffs that drive up operating costs, which increase prices for consumers and fuel rising costs.

In the short term, it will be difficult to control the inflationary effect of tariffs. It will cause interest rates in the United States to rise, reinforcing the value of the United States dollar. The Bank of Canada will need to choose to either raise interest rates, pushing mortgage payments to fall back by hundreds of dollars or keep the same rate, weakening the value of the Canadian dollar. 

According to Brian Madden, Chief Investment Officer at First Avenue Investment Counsel, Canada has some gains to make in this situation: 

�On one hand, imported goods would become more expensive because they would be purchased with less valuable dollars. On the other hand, Canadian exports to global markets, particularly to the United States, would be more competitive due to the weaker Canadian dollar, which could stimulate demand.� (Bellavance)

(Translated from French to English)

Bloomberg's Editor-in-Chief, John Micklethwait, during his interview at the Economic Club of Chicago, raises several questions about the United States dollar as an international reserve currency. Micklethwait comments that a strong and hard-to-access currency could force other countries to use a reserve different from the United States. The editor mentions his concern about the rising national debt, Donald Trump's criticism of the Federal Reserve and his desire to reduce interest rates, which will cause a loss of confidence in the currency, and a weakening of its value. In addition, Micklethwait warns President Trump that nations unhappy with the sanctions will turn away from the US dollar and lose credibility on the international economic stage.

Thus, interest rates for investments and savings will rise. If the Bank of Canada decides to raise the key rate to absorb the effects of inflation, increasing the rates on all bank products, including high-interest savings accounts.

United States - China relations and Canada's role

Donald Trump's presidency presents two potential outcomes for Canada concerning its relationship with China. Canada could align with United States policies or pivot toward other economic markets. During his second term, Trump has engaged in exchanges with Chinese President Xi Jinping, with proposed tariffs on China expected to be two to three times higher than those imposed on other countries.

In the past, Canada has chosen to follow the United States� lead. This has included applying a 100% tariff on electric vehicles from China and adding a 25% tariff on aluminum and steel. This underlines Canada�s allegiance to maintaining strong economic ties with the United States. However, as President Trump threatens even stronger tariffs on China, Canada may have to consider an alternative approach.

Catherine Cobden, President and CEO of the Canadian Steel Producers Association, hopes that the Trump administration will recognize Canada's willingness to promote economic exchanges between the two countries, stating �I really remain hopeful that all of that work helps us continue to demonstrate to the United States that we are a fair� trading partner that shares much of the same concern around unfair traders in our marketplace, and that we are stronger working together than working at odds with one another,� (Benchetrit).

Conversely, Canada could take advantage of the situation and strengthen its ties with China by potentially filling the role the United States once had. There is a huge demand for the development and production of electric vehicles. Brian Kingston, CEO of the Canadian Vehicle Manufacturers Association, emphasizes that this shifting geopolitical landscape presents a unique opportunity for Canada to strengthen its position as a reliable partner, stating, �If a Trump administration moves more aggressively on its approach to China, Canada is perfectly placed to be that strong partner and ally and to help that transition take place. So I think there is an opportunity,� (Lord).

Project 2025

This draft, published in April 2023 by conservative organizations, outlines measures intended to put the United States "back on the right track." While its authors have admitted to referencing the future president�s name several times, Donald Trump denied involvement in the document�s creation. The draft primarily consists of policies aimed at controlling illegal immigration, increasing energy production to reduce costs, downsizing government to lower the national debt, regulating state education, and banning transsgender women from participating in women�s sports categories.

While most of its impact will be felt within the United States, Canada could remain vulnerable to its influence if these measures are implemented. 

CUSMA Renegotiation and the Potential to Leave NATO

Donald Trump cannot make any adjustments until 2026, when renegotiations for the next treaty, such as the Canada-United States-Mexico Agreement (CUSMA), will take place. The incoming president has several means to circumvent the agreement, including Section 232 of the United States Trade Expansion Act, which gives him the power to adjust imports, including tariffs, if excessive imports threaten United States national security.

Trump has stated that he has the intention to renegotiate CUSMA as he believes it doesn't benefit the United States as much as it benefits Mexico and Canada. PwC Canada suggests there is a high chance that Trump will take major steps to withdraw from the agreement as early as 2025.

Regarding NATO, Canada, despite being part of the alliance and committing to its conditions, has never met the minimum requirement of allocating 2% of its GDP to national defence, a shortfall Donald Trump has criticized. He has stated that he will not support member countries that fail to meet the 2% target.

However, Defense Secretary Bill Blair has announced that he wants to accelerate the process by investing more in military procurement but has faced several hurdles, including Congress, the current system for acquiring military equipment from the United States and the regulations surrounding discussions for these sales. Justin Trudeau, Prime Minister of Canada, pledged in July to reach the 2% target by 2032, but Blair believes this date is too far away and could jeopardize negotiations, saying "We are behind. We cannot approach a year in which we are reviewing and renewing the most important trade agreement for our country while being on the defensive," he said. "We cannot be on the defensive, and that's clearly where we are," (D�penses Militaires: Blair "pr�t � aller plus vite"). Blair and his team want to shorten the deadline by 2 years and increase it to 3% by 2035.

(Quotes translated from French to English)

David Perry, President of the Canadian Institute of World Affairs, agrees that national defence spending has increased. In 2015-2016, Canada had fallen below 1% and will have to reach 1.37% in 2024. Perry thinks, however, that the money isn't progressing fast enough.

Immigration

Justin Trudeau's plans to cut immigration for the next 3 years may be hindered. One of the policies Donald Trump is currently promoting is to have all illegal immigrants removed from the United States, and to better control the borders and continue building a wall between them and Mexico. Furthermore, there are also promises to deport 20 million undocumented immigrants. To reduce the negative impact on the economy, Donald Trump argues that deporting these immigrants will ease the pressure on social services and the job market. In his interview with John Micklethwait, the president says he's not against immigration, but that it should be legal. Rather, he wants it to be based on precise criteria that correspond to the country's economic needs. "I want immigration, but it has to be legal. It has to benefit the country," (Johnson) comments the President. 

However, Micklethwait tells him that deporting illegal immigrants will have disastrous economic consequences, as it comes at a cost. It could separate families and communities whose children were born on American soil, and cause labour shortages in sectors such as manufacturing, retail, agriculture, construction and health care, as well as harming businesses that rely on immigrant workers.

Unsurprisingly, many experts are concerned about the repercussions for Canada. Jimmy Jean, Desjardins' Chief Economist comments, "Trump's threat to deport several million illegal immigrants could increase the number of asylum seekers in Canada," (Jean).

(Translated from French to English)

Fran�ois Legault, Premier of Quebec, is urging the federal government to secure the borders in case these individuals decide to seek refuge further north, noting that Quebec already has 600,000 non-permanent residents, including 160,000 asylum seekers. The arrival of additional temporary immigrants, he warned, could worsen the province's existing challenges, particularly the housing shortage, rising housing costs, the overcrowded healthcare system, and increasing grocery prices.

As Donald Trump prepares to assume office for his second term, his protectionist stance and sweeping economic measures raise critical questions for Canada�s future. While Canada may face economic vulnerabilities, there are opportunities to adapt by diversifying markets. Trump�s policies will test Canada�s resilience and ability to navigate a shifting global order, pushing the nation to strike a balance between maintaining strong ties and asserting its independence on the world stage.

Works Cited

�Accord Canada��tats-Unis�Mexique.� Minist�re de l��conomie, de l�Innovation et de l��nergie, www.economie.gouv.qc.ca/bibliotheques/accords-commerciaux/accords-commerciaux/accord-canada-etats-unis-mexique. Accessed 26 Nov. 2024.

Canadienne, La Presse. �L��lection de Trump Change La Donne Sur Les Taux d�int�r�t Aux �.-u. et Au Canada.� Les Affaires, 8 Nov. 2024, www.lesaffaires.com/bourse/lelection-de-trump-change-la-donne-sur-les-taux-dinteret-aux-e-u-et-au-canada/.

�D�penses Militaires : Blair � Pr�t � Aller plus Vite .�� Radio, Radio-Canada, 26 Nov. 2024, ici.radio-canada.ca/nouvelle/2122373/bill-blair-otan-defense-trump-canada.

�Economic Analysis of Trump�s Second Term.� YouTube, YouTube, www.youtube.com/watch?v=_-eHOSq3oqI. Accessed 26 Nov. 2024.

�The Economics of Tariffs.� YouTube, YouTube, www.youtube.com/watch?v=vcJaYNzYMa8. Accessed 26 Nov. 2024.

Fillion, Gérald. �Analyse: Donald Trump, l��pouvantail �conomique.� Radio, Radio-Canada, 13 Oct. 2024, ici.radio-canada.ca/nouvelle/2111847/donald-trump-canada-tarifs-douaniers.

Ghazi, Saarah. �How Another Trump Presidency Will Affect Canada.� Oxford Economics, 13 Nov. 2024, www.oxfordeconomics.com/resource/how-another-trump-presidency-will-affect-canada/.

Government of Canada, Canada Border Services Agency. �Gouvernement Du Canada.� Government of Canada, Canada Border Services Agency, / Government of Canada, 1 Aug. 2024, www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2024/html/tblmod-1-fra.html.

Graham, Penelope. �How Will a Second Donald Trump Term Impact the Canadian Economy?� Ratehub.Ca, 6 Nov. 2024, www.ratehub.ca/blog/how-will-a-second-donald-trump-term-impact-the-canadian-economy/.

Jean, Jimmy. �Canada�s Economy Risks a Trump Slump after the US Presidential Election.� Desjardins.Com, 7 Oct. 2024, www.desjardins.com/qc/en/savings-investment/economic-studies/canada-economy-us-election-october-7-2024.html. 

Johnson, Daniel. �How Will the U.S. Election Impact the Canadian Economy?� BNN Bloomberg, 5 Nov. 2024, www.bnnbloomberg.ca/business/economics/2024/11/04/how-will-the-us-election-impact-the-canadian-economy/.

Jo�l-Denis Bellavance. La Presse. �Tarifs Douaniers de Donald Trump: Des Impacts � Graves � Sur Le Canada, Dit Une �tude.� La Presse, 8 Oct. 2024, www.lapresse.ca/affaires/economie/2024-10-08/tarifs-douaniers-de-donald-trump/des-impacts-graves-sur-le-canada-dit-une-etude.php.

Labbeacute;, Jeacuterocircme. �Trump �lu : Legault Inquiet Pour l��conomie et l�immigration.� Radio, Radio-Canada, 6 Nov. 2024, ici.radio-canada.ca/nouvelle/2118116/francois-legault-donald-trump-election-etats-unis.

Lord, Craig. �Trump�s Re-Election Creates an �uncertain Road� for Canadian Industry - National.� Global News, Global News, 9 Nov. 2024, globalnews.ca/news/10858853/donald-trump-impact-canadian-industry/.

�L��conomie Coloniale�: 1840 � 1848.� Alloprof , www.alloprof.qc.ca/fr/eleves/bv/histoire/l-economie-coloniale-1840-a-1848-h1603. Accessed 26 Nov. 2024.

�Nobel Letter Final.� DocumentCloud, www.documentcloud.org/documents/24777566-nobel-letter-final. Accessed 26 Nov. 2024.

Press, The Canadian. �TC Energy CEO Sees Opportunity in Donald Trump Win as Company Focuses on Natural Gas.� Global News, Global News, 20 Nov. 2024, globalnews.ca/news/10878967/tc-energy-natural-gas-donald-trump/.

Pricewaterhouse Coopers. �Impacts Possibles Du Second Mandat de Trump.� PwC, www.pwc.com/ca/fr/research-insights/united-states-election/business-in-canada-in-the-second-trump-era.html. Accessed 26 Nov. 2024.

Protectionism | English Meaning - Cambridge Dictionary, dictionary.cambridge.org/dictionary/english/protectionism. Accessed 27 Nov. 2024.

�Protectionnisme.� L�Encyclop�die Canadienne, www.thecanadianencyclopedia.ca/fr/article/protectionnisme#:~:text=Les%20colonies%20britanniques%20d%27Am%C3%A9rique%20du%20Nord%20se%20sont,le%20premier%20syst%C3%A8me%20protectionniste%20canadien%20coh%C3%A9rent%20est%20cr%C3%A9%C3%A9. Accessed 26 Nov. 2024.

Retour de Trump: Quels Impacts Pour l��conomie Qu�b�coise?, www.journaldemontreal.com/2024/11/07/quels-impacts-pour-leconomie-quebecoise. Accessed 27 Nov. 2024.

�Trump and Trade Tariffs.� YouTube, YouTube, www.youtube.com/watch?v=gK6MD_8S01o. Accessed 26 Nov. 2024.

�Trump Tariffs Could Lead to Quebec Sawmills Closing, Forestry Industry Fears | CBC News.� CBCnews, CBC/Radio Canada, 14 Nov. 2024, www.cbc.ca/news/canada/montreal/trump-tariffs-quebec-sawmills-1.7383297.

�Trump�s Tariffs Would Crush Canada�s Economy. Why Some Industry Leaders Are Calling His Bluff | CBC News.� CBCnews, CBC/Radio Canada, 27 Nov. 2024, www.cbc.ca/news/business/canadian-impacts-trump-tariff-proposal-1.7393493.

�Trump�s Victory Sparks Concerns over Ripple Effect on Canadian Economy.� CTVNews, 6 Nov. 2024, www.ctvnews.ca/business/trump-s-victory-sparks-concerns-over-ripple-effect-on-canadian-economy-1.7100197.