A new report released by Scotiabank Economics warns that Canada could face a greater economic burden than the United States if Donald Trump wins the upcoming presidential election and follows through on his promises of tax cuts and tariffs on all U.S. imports. The report suggests that if Trump imposes a 10-per cent tariff on all imported goods, except for China, which would face a 60-per cent carve-out on its exports, the U.S. economy could see a GDP drop of more than two per cent by 2027, along with a 1.5 per cent increase in inflation and a two per cent interest rate hike. Canada, being heavily reliant on trade with the U.S., is expected to see a 3.6 per cent drop in GDP, along with increased inflation and interest rates.
According to the report, Trump’s proposed policies are seen as more potentially harmful and likely to be implemented compared to those proposed by U.S. President Joe Biden. Trump’s promises, such as expanded tariffs, are believed to have a significant impact on the economy, as evidenced by the tariffs he imposed during his first term. The report emphasizes the urgent need for Canada to address its productivity issues to withstand economic shocks caused by trade policy changes in the U.S. and abroad. However, the report suggests that it may be too late to make substantial progress before the U.S. election in November.
Trump’s tariffs on Chinese goods and other imports during his presidency have already had a negative impact on the U.S. economy, costing American manufacturers billions of dollars and shrinking the economy by 0.3 per cent. Despite economists’ agreement that tariffs raise prices for American consumers, Trump has expressed his intention to further expand tariffs if re-elected, with a 10 per cent tariff on all imported goods and a 100 per cent tariff on imported cars. He also plans to implement a 60 per cent tariff on Chinese imports specifically.
The report also explores the potential impact of Trump’s vow to mass deport roughly 10 million undocumented immigrants living illegally in the U.S., which it deems to be economically harmful and politically and logistically infeasible. It predicts a three per cent permanent reduction in U.S. employment and GDP as a result. On the other hand, Canada’s impact from such a policy would be negligible. The report also identifies other potential economic impacts on both Canada and the U.S., including scenarios such as China retaliating to tariffs, debt ceiling and budgetary crises in the U.S., Trump’s foreign policy decisions, and domestic civil disorder.
Scotiabank suggests that Canada and the U.S. could mitigate the economic harm from tariffs by negotiating an exemption under the Canada-United States-Mexico Agreement, which succeeded the North American Free Trade Agreement. Such a carve-out could reduce Canada’s short-term GDP drop by half and its long-term drop by 0.3 per cent. However, Trump may insist on further concessions that benefit U.S. trade during negotiations. The report emphasizes the key difference in trade approaches between Trump and Biden, with Biden taking a collaborative approach while Trump focuses on personal benefit. Ultimately, the report underscores the potential economic consequences for both countries based on the outcome of the U.S. presidential election.
