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A U.S. election win by Donald Trump and a Republican sweep of Congress would “be particularly poor for the Canadian economy,” likely depressing exports and real GDP, Desjardins Group economists say in a new report.
The report, published Monday, models the effects of policies central to Trump’s economic platform on Canadian industries, in contrast to the economic policies proposed by Kamala Harris. The authors, including Desjardins chief economist Jimmy Jean and a team of senior economists, also forecast wider impacts on the Canadian economy and policy implications for the Bank of Canada (BoC).
Though Trump’s plan for 10 per cent tariffs on all imports would have “pronounced impacts on Canadian exports,” the economists say they could be offset somewhat by a faster pace of BoC rate cuts and a weaker dollar.
“Taken together, the level of Canadian real GDP could be as much as 1.7 per cent lower by the end of 2028 relative to the Harris–Walz base case in the event of a Republican sweep,” the report said. “And while a recession may be narrowly avoided, it can’t be ruled out.”
The authors note that financial markets, including Canada’s, could follow a different narrative. They say markets are likely to see equity values rise, even as the overall Canadian economy is likely to suffer.
Tariffs: Broad repercussions
Desjardins says the 10 per cent global tariff on imports to the U.S. would result in a short-term boost in exports for Canadian industries as U.S. companies race to build inventory at cheaper prices ahead of the tariffs coming into effect. After that, the tariffs would likely “reduce the level of real exports from Canada by nearly 2.7 per cent as of the end of 2026,” they write.
The tariffs could affect “key commodities”, including precious metals and industrial metals like aluminum, iron and steel, wood and wood products, Desjardins says, noting that around 75 per cent of Canadian exports are to the U.S. The automotive, industrial machinery, plastics, electronic equipment and aviation industries are also “highly exposed” to tariffs, Desjardins notes. The economists write that the possibility of exceptions to blanket tariffs exists, especially given existing trade frameworks like the U.S.–Mexico–Canada Agreement (USMCA) and the Canada–U.S. Auto Pact.
“Other sectors with a history of close, cross‑border ties include oil and gas, refined products, aeronautical products, pharmaceuticals and medicines, and steel,” the report said. “Should the USMCA be abolished, many of these sectors would undoubtedly be subject to substantial tariffs.”
Given that the policy would be applied globally, the report says, the specific impact of tariffs would be compounded by “weaker overall U.S. and global economic activity” and consequently lower demand. Desjardins estimates that slower demand would reduce Canadian real GDP by around 0.8 per cent compared to the Harris–Walz base case.
Canada would most likely apply reciprocal tariffs in response to any change in U.S. trade policy, Desjardins notes. “Tariffs on goods coming into Canada would increase costs for consumers and businesses, further weighing on exports while slowing the pace of consumption and business investment,” the economists write.
Impact on energy sector
Trump’s desire to lower energy prices would likely mean an increase in U.S. oil and gas production. Desjardins argues that it would be difficult to sway oil prices by a large margin given the realities of higher production costs and rising global supply.
And given the end goal of reducing energy costs for U.S. consumers, the U.S. would be unlikely to slap tariffs on Canadian energy exports, the report says. Nonetheless, even slightly lower energy prices “could impact Canada’s energy production as well as corporate profits and household incomes, thereby weighing on overall economic activity in Canada.”
Acceleration of BoC cuts
Desjardins suggests that a slowdown in Canadian exports would prompt the BoC to enter into a faster, deeper pace of rate cuts. “Our estimates suggest an additional 50 bps of easing by the end of 2025 would be appropriate,” the team wrote. Simultaneously, the economists say the Fed would be likely to slow its easing cycle by 50 bps. The wider gap between the two central bank rates could add “some additional weakness in the Canadian dollar as a consequence.” A cheaper Canadian dollar makes Canadian products cheaper for U.S. buyers, the economists note, which could “offset some of the tariff drag on exports.”
Overall, however, the authors write that “Trump’s proposed policies would slow the pace of economic gains in Canada.” They note that the country has weathered adverse economic conditions due to U.S. policy in the past.
“With that in mind, businesses and policymakers would be well advised to hope for the best but plan for the worst.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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