Choose your settings

Choose your language
Economic Viewpoint

Canada’s Economy Risks a Trump Slump After the US Presidential Election

October 7, 2024
Jimmy Jean, Vice-President, Chief Economist and Strategist • Randall Bartlett, Senior Director of Canadian Economics • Benoit P. Durocher, Director and Principal Economist • Tiago Figueiredo, Macro Strategist • Marc-Antoine Dumont, Senior Economist

With the US presidential election just around the corner, we’ve dug into the candidates’ policies and looked at the potential impacts of various election outcomes on the Canadian economy.

 

We assumed a Harris–Walz victory with a divided Congress as the status quo baseline in this analysis as well as our September 2024 Economic and Financial Outlook. We also presumed that a Democratic sweep wouldn’t look much different from a policy perspective, so we didn’t explore that scenario in depth in this report.

 

In contrast, a Republican sweep would likely lead to lower global and US real GDP over the forecast. When combined with higher tariffs on US imports, this would reduce demand for Canadian non‑energy exports. That said, the deeply integrated nature of North American supply chains gives us hope that some exceptions to blanket tariffs could be negotiated.

 

Energy is one possible group of commodities that could avoid the sting of higher customs duties. But the expected ramp‑up in production under a Trump administration would likely mean lower prices, reducing aggregate corporate profits and household incomes in Canada.

 

While the external economic environment would weigh on the Canadian economy in the event of a Republican sweep in November, the impact on financial markets could be another story. Corporate income tax cuts and deregulation in the US would likely boost equity values there and abroad, including in Canada. Lower growth in Canada would weigh on inflation, possibly prompting the Bank of Canada to cut the policy rate more quickly and deeply. A bigger spread between US and Canadian interest rates would further weaken the Canadian dollar. All of these factors would have the impact of partially offsetting the drag from weaker trade.

 

Taken together, the level of Canadian real GDP could be as much as 1.7% lower by the end of 2028 relative to the Harris–Walz base case in the event of a Republican sweep. And while a recession may be narrowly avoided, it can’t be ruled out. With that in mind, businesses and policymakers would be well advised to hope for the best but plan for the worst.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.