Trump's victory adds to Trudeau's challenges in Canada

By David Ljunggren

Donald Trump's return to the White House next year could bring economic pain and difficult decisions for Canada's Liberal Prime Minister Justin Trudeau, once branded a "far left lunatic" by the Republican.

The potential consequences include trade disputes that push Canada into recession since 75% of its exports go to the U.S., as well as thousands of people pouring north across the U.S. border, analysts and economists said.

Trump's victory adds to Trudeau's woes at a time polls show he would likely lose to his Conservative opponent in an election that must be held within a year. Canada's slowing economy and a rapid surge in the cost of living over the past few years are top campaign issues, which come against the backdrop of diplomatic disputes with China and India that have hampered efforts to diversify trade.

Canada, the world's No. 4 crude oil producer, is especially vulnerable to Trump's plan for a 10% tariff on all imports and his vow to boost U.S. energy production.

Laura Dawson of the Future Borders Coalition, which seeks to smooth bilateral trade and travel, said the real challenge will be gradually declining investor confidence in America's northern neighbor.

"For Canada, four years of a Trump presidency could be very long indeed," she said.

Trump called Trudeau "a far left lunatic" in 2022 for requiring truck drivers crossing the border to be vaccinated against COVID. In June 2018, Trump walked out of a G7 summit in Quebec and blasted the Canadian leader for being "very dishonest and weak."

Trudeau, who has been in power since 2015, congratulated Trump on Wednesday and said the friendship between the two nations was the envy of the world.

"I know President Trump and I will work together to create more opportunity, prosperity, and security for both of our nations," Trudeau said on X.

Asked about Trump's win on Wednesday, Finance Minister Chrystia Freeland sought to reassure Canadians.

"A lot of Canadians were anxious throughout the night and I want to say ... that Canada will be absolutely fine," she said. "We have a strong relationship with the United States, we have a strong relationship with President Trump and his team."

In January, however, Trudeau told reporters another Trump presidency would be "a step back" that made life tough for Canada.

Desjardins Economics analysts forecast Trump's policies would result in real Canadian gross domestic product falling by 1.7% by end-2028 compared to what would have happened under a Democratic president.

The Canadian Chamber of Commerce said Trump's planned 10% tariff would cut Canada's real income by 0.9% annually and labor productivity by nearly 1%. If other countries retaliate, setting off a trade war, real income would drop by 1.5% annually, with labor productivity falling by nearly 1.6% each year, the chamber said.

Trump first took office in 2017 vowing to renegotiate the North American Free Trade Agreement, the trilateral trade deal with Mexico and Canada, complaining that trading partners were taking advantage of the U.S.

After 18 months of sometimes rancorous talks, which at one point saw the United States and Canada imposing sanctions on each other's products, the pact was reborn as the U.S.-Mexico-Canada (USMCA) deal.

Trump said on Oct. 11 he would use an existing USMCA clause to start renegotiating the treaty in 2026.

"I'm going to have a lot of fun," he said.

RECESSION INDUCING

David Doyle, Macquarie's head of economics for the Americas, said Trump's promised policies had the potential to be a significant economic shock for Canada.

"It's possible that it is a recession-inducing event because it's on such an enormous scale that we really haven't seen for almost 100 years," he said.

Canada staved off the worst during the USMCA talks by proactively sending officials and politicians to dozens of U.S. states to highlight the benefits of free trade.

Kirsten Hillman, the long-serving Canadian ambassador in Washington, said Canada has "a very good ability to push back" on the 10% tariff proposal and had already been talking to Trump's camp about it.

"We've been spending a lot of time talking to the Trump team, his advisers, saying ... this just isn't the right move," she told the Canadian Broadcasting Corp. in mid-October.

Liberal officials are careful not to say anything derogatory in public about the Republican leader.

But in January, Trudeau told a meeting of senior Liberals that a second Trump administration would be of "a magnitude more challenging" for Canada than the first, according to a source who was present in the room.

Policy clashes seem inevitable, both domestically and internationally, especially if Trump follows through on his plan to deport millions of people living in the U.S. illegally.

"I predict you're going to have a huge flood north of many of those folks trying their chances here," said Jason Kenney, former immigration minister in the Conservative government that ruled from 2006 to 2015.

"We could have a true crisis in terms of homelessness and pressure on our social system just months away," he told a podcast organized by the National Post before the election.

The United States and Europe could well retreat into hostile competing blocs, stranding Canada in the middle, said Kim Richard Nossal, professor of politics at Queen's University in Kingston and author of a book on Canada's likely isolation if Trump's movement were to regain power.

"The implications for Canada are, in my view, dramatic," he said, predicting Trump would insist Ottawa spend far more on defense.