I would like to read an explanation of why the value of the Canadian dollar would fall if Donald Trump were elected on November 5.
Madeleine Cote
Indeed, the value of the Canadian dollar could experience a depreciation if Donald Trump is elected president of our southern neighbors, according to many economists.
On the one hand, his entry into office would cause a lot of uncertainty in the markets, explains Jean-François Perrault, chief economist at Scotiabank.
“What impact on inflation? What impact on interest rates? We saw it during his first mandate, it generates what we call risk aversion, specifies Mr. Perrault. So, in the Trump world, the more uncertainty there is, inevitably, the more it leads to a preference for the American dollar compared to other currencies, for international investors. »
PHOTO EVAN VUCCI, ASSOCIATED PRESS
Former President Donald Trump at a campaign event Friday in North Carolina
On the other hand, the protectionist trade policies that he wishes to implement once elected portend a decline in the value of the Canadian dollar, while the United States is Canada’s main trading partner.
Former US President Donald Trump promised a 10% tariff hike on all imports, and 60% on those from China. This tariff increase would have a considerable impact on the Canadian and Quebec economies and could reduce Canadian exports to the United States by 2.5%, Desjardins estimated.
The imposition of tariffs causes a weakening of demand for Canadian goods and, in turn, a weakening of the value of the Canadian dollar.
“Obviously, the Canadian dollar becomes weaker, and other currencies too, relative to the American currency,” explains Mr. Perrault. If imports become more expensive in the United States, the American currency appreciates to reduce the increase in the cost of imports a little,” he continues.
With this in mind, Trump would aim to reduce imports in order to promote domestic production and American businesses.
The ideal reaction of the Canadian government to this possible imposition of tariffs, according to the economist? Do not impose anything in return. Because the bill will fall… to Canadian consumers.
Similar customs tariffs would increase the cost of production for local businesses. And the Government of Canada cannot guarantee that it will succeed in influencing the economic decisions of Americans by retaliating in this way.
Not the first time?
Experts believe this could be a “2.0” trade war. During his first term, Trump imposed tariffs of 10% on steel and 25% on aluminum from Canada.
“Canada fought back. But Trump is proposing something that is much more generalized than what he did in the first term,” remarks Mr. Perrault.
General tariffs on Canadian exports could have “bigger” economic repercussions, prompting companies to “look to the United States for products intended for the American market,” reports an analysis by CIBC economists, published last week .
A 35% drop in exports of manufactured metals from Canada to the United States was recorded in 2018, the publication adds.
The tariffs “undeniably harm the country against which they were imposed,” argues RBC Global Asset Management chief economist Eric Lascelles in an analysis of the issues at stake in the election. In the report published in September, however, he emphasizes that this is often also the case for the country which imposes them, since inflation and the country’s key rates could be affected.
America under Harris
The economic platform of the Democratic candidate, Kamala Harris, is much less worrying because there is no this idea of a trade war, explains Jean-François Perrault.
“Kamala Harris’ platform, from a fiscal point of view, is much more responsible, so an increase in uncertainty is much greater under Trump, according to analysts,” adds the expert.
However, the Scotiabank analyst and Desjardins analysts agree that Kamala Harris’ platform could be much more difficult to implement in the event that Congress is divided between Democrats and Republicans.