Trudeau Faces New Trade Fight After Trump Returns to White House

Canada is preparing for significant economic disruptions following the potential re-election of Donald Trump, as experts predict that the country’s key industries could face major challenges due to his protectionist policies. The U.S. remains Canada’s largest trade partner, importing vast amounts of Canadian goods, including energy, cars, and minerals. With the two countries’ trade relationship worth approximately $2.6 billion daily, any shift in U.S. policies could have a profound impact on Canada’s economy.

Trump’s proposed tariffs, including a universal 10% on all imports and a hefty 60% on Chinese goods, have raised alarms. Experts warn that if these measures are implemented, they could weaken global GDP and cause particular economic strain for Canada and Mexico. Canada, in particular, could face a 2% reduction in GDP by 2028, especially if the rest of the world retaliates against the U.S., according to Bloomberg Economics.

The potential impact of Trump’s trade policies on various Canadian sectors is wide-ranging:

Automotive Industry:
Canada’s automotive sector, which exports over 95% of its vehicles, stands to lose significantly if the U.S. implements tariffs or changes tax policies. Trump’s proposal to make tax deductions for car loans on U.S.-made vehicles could also disadvantage Canadian manufacturers. While trade and manufacturing between the two countries are deeply integrated, particularly in Ontario, Canada’s auto parts sector is highly reliant on U.S. exports for its operations.

Energy:
As the largest supplier of crude oil to the U.S., Canada could see its energy sector impacted by Trump’s policies, particularly his promise to increase U.S. oil production by opening up federal lands and reducing regulations. While Canada now has increased access to non-U.S. markets through the Trans Mountain pipeline, there is uncertainty regarding how Trump’s energy policies will affect global oil prices.

Metals and Lumber:
Canada is the largest exporter of aluminum to the U.S., and tariffs imposed during Trump’s first term on Canadian steel and aluminum have created ongoing tensions. Similarly, the U.S. has raised duties on Canadian softwood lumber, a long-standing trade issue that saw a recent hike to almost 81%.

Consumer Goods:
Trump’s previous tariffs on steel and aluminum led to retaliatory measures from Canada, targeting a wide range of U.S. consumer goods, including mattresses, bourbon, and washing machines. If a new tariff war ensues, Canadian consumers could face even higher prices, especially if the Canadian dollar weakens further against the U.S. dollar.

Banks:
Canada’s major banks, many of which have significant operations in the U.S., could benefit from corporate tax cuts proposed by Trump. Additionally, if the U.S. dollar strengthens under Trump’s presidency, Canadian banks may see gains in U.S.-dollar-denominated profits when converted back into Canadian dollars.

With a likely review of the US-Mexico-Canada Agreement (USMCA) on the horizon, Canadian officials, business leaders, and industry groups are already strategizing to prepare for the implications of a second Trump term. As the U.S. moves toward more isolationist policies and protectionism, Canada faces an uncertain economic future.