Trump is stirring the pot around the globe, muddying the waters between the US and, well, most other countries (besides Russia, of course). From Mexico to Australia to the Netherlands and especially including the seven Muslim-majority countries targeted by the immigration ban (Iraq, Iran, Libya, Somalia, Sudan, Syria, and Yemen), Trump is felling international friendships fast; but what about Trump’s neighbours to the north? How is Canada holding up as Trump is taking his lawnmower to legislation?
Well, there don’t seem to be any wars beginning yet, but when it comes to Canada’s export economy, Trump has the entire country on edge.
Canada’s economy is a resource based export economy. Approximately 30 per cent of Canada’s GDP is based on international exports of natural resources, such as agriculture, forestry, mining, and of course, energy. In fact, in 2009, exports from these industries accounted for approximately 58 per cent of Canada’s total exports. Approximately 73 per cent of Canada’s total exports are traded to the US, and approximately 98 per cent of Canada’s total energy exports are sent to the US.
Canada isn’t the only country who benefits from its resource exports. It is the largest supplier of energy exports to the world’s largest economy, but since so much of Canada’s economy is built on its exports, our economy stands to lose a lot should any of Trump’s upcoming executive orders disrupt trade agreements. In fact, many are suggesting that the potential disruption is already taking its toll on Canada’s export economy.
How will Trump’s politics impact Canada?
Trump’s repeated threats to renegotiate the North American Free Trade Agreement and implement new border taxes may already be impacting Canada’s exports by discouraging US companies from making new investments in Canadian industries.
Trump has positioned himself against trade, stating that it is the cause of the destruction of the middle class. He has suggested deterring trade in favour of increasing investments in US manufacturing. However, such a move could have a negative impact on a Canadian economy whose primary export market is the US.
While energy exports aren’t expected to see as heavy an impact, provinces like Ontario and New Brunswick, whose growth mainly comes from non-energy exports to the US, are expected to be hit hardest by Trump’s potential trade negotiations. However, even Saskatchewan and Alberta, who were expected to gain from Trump and his administration’s support of the Keystone KL pipeline, may find their Keystone benefits offset by losses in exports.
How much of an impact can this have on Canada’s economy?
A mere 10 per cent border adjustment could mean as much as a nine per cent drop in Canadian exports. A drop like that could represent a 1.5 percentage point decline in GDP growth.
It’s a heavy hit for an economy that is still reeling under a recession that resulted from the 2014 drop in oil prices, especially since Trump’s inauguration also means an axe in the Trans-Pacific Partnership, a trade agreement that would have connected Canada to the global market of 10 countries (Canada and the US make 12), including Japan.
In other words, Canada should probably do a bit more than hold its breath to see what happens to NAFTA; it might be time to look more closely at the codename: TRUMP risk management protocols instead.