BJK Financial Group Blog

With Donald Trump back in office following this year’s U.S election, many Canadians are growing increasingly concerned about the effects his plans and policies could have on our country, specifically economically. As the United States is Canada’s largest trading partner and a key player in all global economics, Trump’s proposed tariffs, energy production, and immigration are bound to have significant implications for Canada. 

Tariffs and Trade Relations 

To start, one of the major potential causes for economic disturbances for Canadians stems from the  tariffs  promised to be imposed by Trump and the Republican Party. According to Marc Ercolao, an economist with TD Bank, these tariffs could lead to higher costs for Canadian imports and could bring temporary inflation spikes. For many Canadians inflation is already a major concern and “Tariffs create a negative income hit to Canadians as they pay more for imports, which would feed into a temporary and modest re-acceleration of inflation to the 2.5–3.0% y/y range before roughly reverting back to the Bank of Canada’s (BoC) 2% target by 2026” TD  The sectors most vulnerable to U.S. tariffs include the auto industry, energy, chemicals, forestry, and machinery. For example, our automotive supply chain is deeply integrated with the U.S., with approximately 20% of immediate goods coming from American suppliers. In contrast, industries like agriculture and mineral exports may be less affected, as only about half of their goods are destined for the U.S. market. Canadian businesses are expected to adapt by diversifying supply chains or absorbing some of the additional costs. Now these adjustments might still hurt corporate margins and household incomes. In the worst-case scenario, these tariffs could push Canada’s GDP down by 1.7% by 2028, with even a risk of a recession if Trump brings harsher policies.

Adding to the tension is Canada’s Digital Services Tax (DST), which imposes a 3% tax on revenue earned by foreign tech companies. The U.S. has pushed back, arguing that this tax violates trade agreements, and there are concerns that it could lead to further strain on negotiations between the two countries.

Energy and Resource Sectors

Moving on to Trump’s commitment to expanding U.S. oil and gas production, disregarding environmental impacts —echoed in his “Drill, Baby, Drill” slogan—Desjardins team including Jimmy Jean, Vice-President, Chief Economist and Strategist mentioned the mixed consequences for Canada. On one hand, an increase in U.S. energy output could lead to lower global energy prices, which might hurt Canadian oil producers. Similarly, reduced energy prices often translate to lower corporate profits and wages in Canada’s energy sector, further taking a toll on economic activity. However, experts believe the integrated nature of the North American energy market may provide some relief as they could be negotiated. In particular, Canada’s role in supplying energy and related goods to the U.S. might shield it from the harshest impacts.

Immigration Policies

On to immigration, which is another important area for the Republican Party, where Trump’s policies could indirectly affect Canada. His administration has vowed to significantly restrict immigration and deport millions of undocumented residents in the U.S. While some Canadians worry this could drive more immigrants to move up north to Canada, experts suggest that Canada’s recent tightening of visa requirements for travelers could mitigate a potential surge in immigration. Nonetheless, The American Immigration Council stated: “ It would cost $315 billion to arrest, detain, and deport all 13.3 million living in the United States illegally or under a revocable temporary status”, which could indirectly impact Canada through disruptions to cross-border trade and labor markets. Businesses that rely heavily on immigrant labor will also be forced to downsize and there may also be a reduced demand for Canadian goods and services.

Finally, the adaptability and strategies from Canadian businesses and government policies will also determine how everything will play out and affect Canada. It's also important to note that these predictions are based on all current information and plans from Trump as well as the current market performance meaning it is subject to change. In the meantime, Canadians can prepare by staying informed and proactive with their personal business decisions.