US President Donald Trump’s return to the White House has shocked the managers of Canada’s $2.1 trillion economy.
Ottawa is already struggling with domestic pressures such as sluggish growth and a housing crisis, and faces the threat of tariffs from the United States, its largest trading partner.
President Trump’s pledge to take the United States down a protectionist path comes as the country’s highly unpopular outgoing leader, Prime Minister Justin Trudeau, faces a national election that could be held as early as May. Economists say this poses a big challenge for who will replace him.
“It’s a daunting task for whoever takes over from Prime Minister Trudeau, because from there there is no way to call an early election,” Tony Stilo, director of Canadian economics at Oxford Economics, told Al Jazeera. It’s a short journey,” he said.
“It’s very difficult. Voters seem ready for change and Trudeau may strengthen public support for the Liberal Party with a new face, but it may not be enough.”
Tariffs were barely mentioned in President Trump’s inaugural address on Monday, but hours later he announced that 25% tariffs could be imposed on Canada and Mexico as early as February 1, prompting a reprieve. ‘s hopes were dashed.
“What will happen to Canada’s exports in the event of a tariff war with the United States? Eighty per cent of exports go to the United States, so this will be a big determinant of the economic outcome,” said Lars Olsberg, an economics professor at Dalhousie University. “This is very vulnerable.” University in Halifax, Nova Scotia, told Al Jazeera.
Canada’s exports to the United States alone account for approximately 20% of its gross domestic product (GDP).
Stephen Brown, deputy chief North American economist at Capital Economics, told Al Jazeera that a 25% tariff would have a “significant” impact on the Canadian economy and could trigger a recession.
But Brown said Trump’s tariff threats could be an attempt to gain more leverage in negotiations over the U.S.-Mexico-Canada Agreement, which is due to be reviewed next year. Brown said Trump is a negotiator and “will look for concessions so he can say he got a good deal.”
President Trump has made it clear that there are three areas of concern regarding Canada: the trade deficit, border security, and Canada’s relatively low defense spending in NATO.
Brown said Ottawa could address all of these issues in one fell swoop if it chose to buy more defense equipment from the United States, which would help meet NATO spending targets and strengthen border security. He said it would be possible.
He said Canadian authorities also have some influence because the country supplies about 20% of the oil consumed south of the border and could theoretically cut off supplies. .
Last week, Canadian Foreign Minister Mélanie Joly told reporters that Ottawa was ready to meet the tariffs.
“And we’re ready for the second round and we’re ready for the third round,” Jolie said.
Following President Trump’s remarks Monday night, Canadian Finance Minister Dominic LeBlanc said it would be a “mistake” for the U.S. to move forward with tariffs.
“From a cost of living in the United States, jobs in the United States, security of the supply chain, that would be a mistake,” LeBlanc said.
Oxford Economics said in a report on Tuesday that the North American trade war would deliver a “body blow” to the U.S. economy, resulting in slower growth, inflation, unemployment and higher gas prices.
That said, there is also the reality of a “lame duck” prime minister having to deal with the U.S. government, Stilo said.
domestic pressure
Trump aside, Prime Minister Trudeau and the Liberal Party are under pressure on the domestic front amid growing dissatisfaction with soaring housing prices and the state of public services such as child care and health care.
Another factor hampering the government’s popularity is the carbon tax, which has become a rallying cry for the opposition Conservative party led by Pierre Poièvre.
Introduced in 2019 to encourage the transition to clean energy, the tax will quadruple to C$80 ($55.50) per tonne, reaching C$170 ($118) by 2030. is.
To that effect, opposition leader Mr. Poièvre promised “tax cuts.”
The repeal of the tax will reduce the price at the pump of petrol by 25 cents per liter, but the repeal of the carbon pricing scheme will also end rebates offered to eligible individuals and families to offset the costs of rising fuel prices. It turns out.
“The ultimate impact for the majority of households will likely be laundry, but that will vary depending on the specific driving habits of individual households,” Stilo said.
Then there are immigrants.
Thanks to immigration, Canada’s population has grown by an average of about 1% each year over the past decade, but the number of residents will jump 3.2% from 2023 to 2024, the largest annual increase since the 1950s.
In October, Prime Minister Trudeau announced drastic cuts to immigration, exacerbating pressures on Canada’s housing, health care and education, upending many lives and business plans in the process.
“One of the tragedies of the Trudeau era is that the consensus on immigration has been quite shaken,” said Dalhousie University’s Osberg.
In an October poll released by the Environmental Research Institute, 58 per cent of Canadians said Canada is accepting too many immigrants, an increase of 14 percentage points from 2023. It then increased by 17 percentage points from 2022 to 2023.
The institute says the rise in negative sentiment toward immigration over the past two years is the most rapid change since the institute began asking the question in 1977.
The results also showed that the proportion of Canadians who say there are too many immigrants has reached its highest level since 1998.
While anti-immigrant parties have made little headway, more Canadians are for the first time expressing doubts about who is allowed into the country and how well they are integrated into Canadian society.
Olsberg said Canada has long focused its immigration policy on skilled immigrants, with the exception of a brief period after the coronavirus pandemic when small businesses complained they couldn’t find workers.
“Right now, we have people working at[coffee chain]Tim Hortons and[department store]Canadian Tire on temporary work visas. These are permanent jobs, but now they’re suffering the consequences.” he said.
Some of the immigration policy changes, such as reducing the number of temporary visas issued, are already beginning to have an impact on the economy. As mortgage regulations ease, housing availability also eases and rents are starting to fall.
In addition to slowing immigration, which has helped boost growth, experts say the next government will also face long-standing structural problems, including low productivity and sluggish business investment.
“Rising inequality and growing insecurity creates a lot of anger and anxiety,” Olsberg said.
“Then, out of nowhere, comes COVID-19, a huge danger, and suddenly there’s a huge war in Europe. The world is changing around us. Pierre Poièvre tells Trudeau everything. We now have Donald Trump, an agent of chaos who is very skilled at focusing his anger. All that anger and anxiety is at the heart of the problem.”