The election of Donald Trump could cause a recession in Canada, economists say. But the Americans do not seem to realize that a return of the former Republican president to the White House risks costing them too, deplores the Canadian Chamber of Commerce.
The 10% tariff alone that Donald Trump promises to impose on all imports of foreign products could impose, each year, an equivalent economic cost of $1,100 per person on either side of the border between Canada and the United States are so closely linked, the Chamber estimates in an analysis unveiled Tuesday and written by University of Calgary economics professor Trevor Tombe.
“The critical importance of trade with the United States is generally understood by Canadians, but many Americans do not realize the extent to which Canada is a partner [tout] as essential and reliable,” we observe.
This interdependence is embodied in all kinds of ways that are much richer and more complex than certain political speeches suggest. Yes, of course, the United States is Canada’s main trading partner, but this is also the case for Canada for 34 of the 50 American states, compared to only 7 for which this main partner is Mexico and 5 for which it is is China. For 17 states, their exports to Canada are at least 80% higher than those to neighboring Mexico.
Americans who make the mistake of viewing international trade as a zero-sum game will complain that their country almost always runs a trade deficit that has widened recently, from an average of about $2 billion Americans at around 5 billion per month. But this is mainly attributable to its purchases of Canadian oil. Once fuels are excluded from the calculation, the United States instead maintains “a constant and relatively stable trade surplus with Canada” which has been 2 to 4 billion US dollars per month for around fifteen years.
This American trade surplus would be even higher if we did not only look at trade in goods, but also took into account trade in services. For example, Canada purchased much more American services during the first three months of the year (22.4 billion), in the form of business services (15.5 billion) or travel (5.7 billion), than he sold to the Americans (12.2 billion).
Nixon’s ghost
But this remains too crude a way of seeing the interconnection between the two economies, continues Trevor Tombe. Indeed, more than half (63%) of Canadian exports to the United States are, in fact, inputs, which are not intended to be sold directly to American consumers, but which rather meet the need of American manufacturers . The proportion is almost the same (50%) for United States exports to Canada. This means that about one-sixth of the value of everything Americans buy in Canada comes from inputs that Canadian companies had first purchased in the United States.
It must be said that around half of the trade between the two countries takes place between companies which have common owners. This is explained in particular by the fact that Canada has invested, in 2023 alone, a little less than 1,100 billion in the United States, compared to nearly 620 billion for the United States in Canada.
We will understand, in this context, that the imposition of a 10% tax which would apply each time a good crossed the border “would have considerable negative economic repercussions”, says Trevor Tombe. Especially since it is a safe bet that the United States’ other trading partners will not go long without imposing their own tariffs in retaliation.
Another Republican president, Richard Nixon, had already tried to apply a general 10% surtax on all imports in August 1971. The measure lasted only four months before being canceled.
Trevor Tombe estimates that Donald Trump’s tariff alone would ultimately reduce gross domestic product (GDP) and productivity in Canada by almost 1%, compared to half as much in the United States, and by almost double in the case of a similar response from other countries. This would inflict an annual economic loss of nearly $45 billion on Canada, and the equivalent of $1,100 per year for every Canadian and American.
Danger of recession
The Canadian Chamber of Commerce’s analysis adds to the long list of opinions from American and foreign experts warning the Republican camp against the consequences of their presidential candidate’s economic program. The day before, Desjardins Movement economists had estimated that real GDP in Canada could be 1.7% lower by the end of 2028 in the event of a Republican electoral sweep rather than an election of Democrat Kamala Harris, equivalent to a status quo.
“Even if it is true that a recession could be narrowly avoided, it cannot be completely ruled out,” warned Quebec economists. “With this in mind, businesses and policymakers would do well to hope for the best, but prepare for the worst. »