How the U.S. Election Will Impact Canada’s Economy—and CPAs
Are you a CPA Ontario Member? Watch the Insights Event With David Frum and Rudyard Griffiths.
On January 20, 2025, Donald Trump will be sworn in as the 47th president of the United States, and his return to the White House will mark a turning point in U.S./Canadian relations.
With our close economic bond and over three quarters of Canada’s exports heading to our southern neighbour, a Trump presidency will impact Canada at a moment when our economic performance is already lagging behind the U.S.
Trump is putting the pieces in place to enact his agenda on immigration restraint, tax cuts and trade protectionism; these pieces include Cabinet appointments and a bold threat to impose a 25 per cent tariff on Canada and Mexico on day one if his demands for stricter immigration and border security aren’t met.
David Frum, Canadian-American political commentator and staff writer at The Atlantic, and Rudyard Griffiths, Chair and moderator of the Munk Debates, joined us for a timely CPA Ontario’s Insights event on November 26, unpacking what a second Trump administration will mean for Canada’s economy. The conversation was frank and wide-ranging, touching on tariffs, trade, taxes, and how Canada might respond.
Trump, Trade and Tariffs: The Implications for Canada and the United States
Put simply, President-elect Trump’s proposed 25 per cent tariff represents a threat to the Canadian economy. Currently, Canada exports approximately $600 billion worth of goods (totalling 20% of our gross domestic product) to the U.S. each year. But as Frum reminded the audience, the proposed tariff would negatively impact the U.S. economy as well.
“Every product [on the market] is an input into somebody else’s process—if you raise the price of Mexican glass, you also raise the price on American window manufacturing and the entire cost of building goes up for everybody,” said Frum.
Frum pointed out that trade has been one policy area where Trump has been the most consistent over the years. During his first presidential exploration in 1987, he took out full page ads in the New York Times, the Washington Post and the Boston Globe arguing against trade with Japan.
Prominent figures in the incoming administration, including vice-president elect J.D. Vance, also see tariffs as a tool for encouraging Canadian manufacturing firms to relocate to the U.S., especially when coupled with enticing commitments by governors of northern states to provide tax breaks and reduce red tape.
There’s a lot hinging on the incoming administration’s tariff proposal, including fiscal implications for the U.S. federal budget. As Frum pointed out, one of the administration’s policy priorities is to make the 2017 corporate tax cuts permanent, but obtaining the necessary number of votes in the Senate will require making those tax cuts revenue deficit neutral. The revenue from tariffs, therefore, might be necessary to offset the lost tax revenue.
David Frum, Canadian-American political commentator and staff writer at The Atlantic, and Rudyard Griffiths, Chair and moderator of the Munk Debates, discuss Trump, tariffs, and what the incoming administration will mean for Canada's economy.
How Should the Canadian Government Respond?
Frum argued that Canada's trade agreements with the U.S., from the Canada-U.S. Free Trade Agreement to NAFTA and now CUSMA, show that Canada views trade as more than just an economic benefit – it's an ideal. Canada should look to its own trade with the U.S. but not lose sight of supporting the global trade system.
With the long-held consensus about international trade now in jeopardy, Frum believes Canada will need to think about how to develop “positive leverage” with its other allies, including U.S. state governors and the European Union, by reinforcing the economic benefits of trade.
Frum also spoke, reluctantly, of the need to develop “negative” leverage in the context of retaliatory measures. How Canada responds to U.S. protectionism will depend on the government’s appetite for confrontation with our largest trading partner. The response could range from retaliatory tariffs in the short-term to the “nuclear option” of reducing security cooperation over the long-term.
“Any such attempts to use negative leverage against the U.S. would hurt the Canadian economy even more,” said Frum. “Canada will have to diversify its [trade] partnerships and respond with measures that may inflict pain on the U.S. even at the price of pain to Canada too.”
When it comes to economic productivity, Frum was not sanguine. In his view, productivity isn’t static and must be Canada’s constant policy focus. “There will always be events or policies that impact our competitiveness. The reality, however, is that Canada “has a problem building needed things from pipelines to housing.”
According to the latest OECD productivity data, the average Canadian worker only produces about $53 of value per hour, compared to $74 produced by the average U.S. worker (all data in 2015 dollars). The original North American Free Trade Agreement was designed to boost Canadian productivity but, as Frum pointed out, there are no “one and done” fixes for productivity. Building a more efficient and productive economy is an ongoing project.
From interprovincial trade barriers to tax policy that encourages capital investment, there are many steps that Canada can take to boost our own economic output. Completing critical infrastructure projects, which often face delays, is another example.
While tackling Canada’ productivity challenges is a long-term project, securing our bi-lateral trading relationship with the U.S. must be seen as the priority for the immediate future.
Audience Q&As
Frum and Griffiths closed the event by taking questions from the audience on a wide range of topics.
CPAs work in an international profession, and one audience member asked if we could expect to see talent mobility impacted by the new American administration. Frum mentioned that after NAFTA was ratified in the 1980s, the assumption was labour mobility would be the next policy area to be addressed. Looking to 2025 and beyond, Frum was not optimistic. In the current environment, the mobility of talent and even capital can no longer be guaranteed.
On a different topic, a member of the audience asked about how the proposed tariffs could impact the federal and Ontario government investments in electric vehicle (EV) manufacturing, and the broader EV supply chain with the U.S. While the incoming administration has shown little enthusiasm for the prospect of EVs, this was one area where Frum expressed some optimism.
The forces driving EV adoption in North America are already well established and if the U.S. federal subsidies for electric vehicles were removed, California, America’s largest car market, will put their own subsidies in place. With the market for EVs growing more mature every day, Frum believes there is little the Trump administration could do to reverse this trend.
The Bottom Line for CPAs
Throughout their conversation, Frum and Griffith reminded the audience that we are moving into a period of incredible uncertainty. The possibility of a 25 per cent tariff on Canadian products exported to the U.S. will fundamentally change the calculus for investment and capital allocation. The impact on both the U.S. and Canadian economies cannot be understated.
In this environment, the role of CPAs in providing trust in our capital markets and our economy has never been more important. The story of how Canadian businesses will be impacted by trade protectionism, tax changes and deregulation in the U.S. will be told through the numbers. The strategic insight, ethical mindset and technical expertise of the CPA will be critical for helping Canadian businesses navigate these uncertain times.