Canada stands to bear a greater economic burden than the United States if Donald Trump wins the upcoming presidential election and imposes promised tax cuts and tariffs on all U.S. imports, a new report warns.
The analysis released Tuesday by Scotiabank Economics says if Trump returns to the White House and follows through on his vow to slap a 10-per cent tariff on all imported goods — with the exception of China, which would face a 60-per cent carve-out on its U.S. exports — and countries retaliate with their own, there would be “substantial negative impacts” on the U.S. economy. GDP would likely fall by more than two per cent by 2027 relative to current forecasts, while inflation would rise 1.5 per cent, leading to a two per cent interest rate hike.
In Canada, the economic impact would be even more stark with an expected GDP drop of 3.6 per cent, given its reliance on trade with the U.S. Inflation and interest rates would also be pushed up for the next two years — 1.7 per cent and 190 basis points, respectively — the report suggests.
“What Trump is looking to do is much broader, and much more concerning, than the tariffs he imposed during his first term,” said Scotiabank’s chief economist Jean-François Perrault, who authored the report.
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Perrault says it’s far too late to fix the problem in time for the U.S. election in November.
“It takes a long time to change direction on productivity,” he said in an interview. “Maybe you can make up some ground over the next few quarters, but we need massive amounts of progress to get to where we need to be (to withstand U.S. economic shocks).”
Trump’s policies seen as more likely than Biden’s
Although the analysis examined the impact of policies proposed by both Trump and U.S. President Joe Biden, it focuses more on the fallout from Trump’s promises.
That’s because they’re not only more potentially harmful, Perrault said, but also because they’re more likely to be implemented than Biden’s vow to raise the corporate tax rate.
“There’s really no appetite in the U.S. right now for any kind of tax hike,” Perrault said.
Implementing a change to the corporate tax rate would require Biden’s Democrat party to control both chambers of Congress — a scenario seen as highly unlikely, given recent polling. Trump’s proposals, meanwhile, are seen as more likely to be implemented quickly and without congressional approval, particularly his expanded tariffs.
During his presidency, Trump imposed tariffs on about US$50 billion worth of Chinese goods imported to the U.S., later expanding to another US$300 billion, sparking a trade war with China. Many of those tariffs have remained in place under the Biden administration.
Trump also slapped tariffs up to 25 per cent on imported washing machines, solar panels, steel and aluminum in 2018. Canada and Mexico were later exempted from the steel and aluminum tariffs in 2019, although the Canadian aluminum tariff was briefly reintroduced in 2020.
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U.S. government data shows those tariffs — none of which were legislated or approved by Congress — have cost American manufacturers more than US$230 billion as of March 2024 and have shrunk the U.S. economy by 0.3 per cent.
Trump has repeatedly claimed tariffs serve to punish unfair trade practices from other countries, despite agreement among economists that they raise prices for American consumers, and says he wants to expand them to 10 per cent on all imported goods from every country if he wins in November. He has also said he will seek a 100 per cent tariff on imported cars, and carve out a 60 per cent tariff for Chinese imports specifically.
The most likely scenario — a continuation of Trump’s 2017 tax cuts beyond their 2025 expiration combined with across-the-board tariffs — would see Canada’s GDP stay three per cent lower long-term, and just over one-per cent lower in the U.S.
The Scotiabank report says the economic harm from the tariffs can be reduced on both sides of the Canada-U.S. border if Canada and Mexico negotiate an exemption with the U.S. under the Canada-United States-Mexico Agreement (CUSMA), which replaced the North American Free Trade Agreement (NAFTA) during the Trump administration.
Scotiabank predicts in that scenario, Canada’s GDP would only fall by 1.4 per cent in the short term — half the drop forecast without an exemption — and 0.3 per cent in the long term, while U.S. GDP would fall 1.7 per cent and 1.2 per cent, respectively.
Perrault says he’s “hopeful” such a carve-out could be negotiated, even though Trump would likely insist on further concessions that benefit U.S. trade. That “bigger stick” approach could be somewhat limited compared to the contentious CUSMA negotiations, however.
“Trump owns CUSMA, so he wouldn’t be in as much of a position to throw it away,” he said. “So maybe we get a little bit of a break.”
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The report also examines the impact of Trump’s repeated vow to mass deport roughly 10 million undocumented immigrants living illegally in the U.S., which Perrault admits would be “politically and logistically infeasible.” It would also be economically harmful, the analysis found, permanently reducing both U.S. employment and GDP by three per cent, though the impact on Canada would be negligible.
The analysis says Canada and the U.S. could see additional economic impacts due to a number of scenarios it didn’t explore, including China retaliating to tariffs by unloading its U.S. Treasury holdings; further debt ceiling and budgetary crises in the U.S.; Trump’s appeasement of aggressive foreign adversaries like Russia and China; and domestic civil disorder regardless of who wins the U.S. elections.
Perrault said the findings also underscore the key difference between Trump and Biden as Canadian trade partners.
“Biden seems to view negotiations from a collaborative approach: how can everyone come away with a win?” he said. “Trump doesn’t see it that way. He’s very much in the mindset of, ‘How will this benefit me?’”
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
