President Donald Trump’s address to the World Economic Forum in Davos has sent shockwaves throughout Canada’s economic and investment communities, further fueling the economic uncertainty that has been a defining feature of his return to the Oval Office.
Trump, who appeared via video conference, remarked how the US doesn’t need Canadian oil, gas, autos or lumber. These comments reignited concerns about the future of Canada/US trade relations — one of the world’s most interconnected and interdependent trade relationships.
Elsewhere in his speech, Trump suggested that the United States could impose sweeping tariffs on Canadian imports, raising the threat of economic disruption for industries that are reliant on cross-border trade, as well as the investors who support them.
Reigniting talks of Canada becoming the “51st state” of America
During his address, Trump delivered a bold critique of Canadian exports, asserting that the US could function without key commodities from its northern neighbour.
He went so far as to propose that Canada could avoid tariffs entirely by becoming a US state — a remark that sparked backlash and disbelief among Canadian leaders and the general public alike.
The administration has steadfastly levied the threat of implementing a sweeping 25% tariff on Canadian imports, which insiders say could come as soon as February 1, 2025.
“We’re going to be demanding respect from other nations,” Trump told the crowd of powerful business and political leaders in attendance. “Canada has been very tough to deal with over the years.”
Economic interdependence between Canada and the USA
The close economic ties between Canada and the US are underscored by staggering trade figures.
In 2023 alone, $3.6 billion worth of goods crossed the border, cementing Canada’s role as America’s top trading partners according to the Canadian government.
Additionally, Canadian exports of energy products such as oil, natural gas and power to the US amounted to nearly $170 billion, or almost one-third of total shipments in 2024, according to TD Economics.
These numbers highlight the mutual benefits of the trade relationship and the risks of potential tariffs.
Implications of a trade war: layoffs, closures and skyrocketing prices
The threat of a trade war raises the stakes for Canadian industries that depend on US markets.
Should the proposed tariffs take effect, the automotive manufacturing and natural resources sectors could face widespread layoffs and plant closures. The auto sector, already grappling with supply chain disruptions, would be particularly hard-hit.
The Vice President of the Business Council of Alberta, Scott Crockatt, told CTV News that 25% tariffs would be “devastating” for the country, while David Adams, CEO of Global Automakers of Canada, added how auto production facilities could face closures if the tariff environment becomes too challenging.
Meanwhile, US consumers could experience higher prices for goods as proposed Canadian counter-tariffs drive up costs.
The Canadian government plans retaliation
In response to Trump’s threat of taxation, Prime Minister Justin Trudeau, who recently stepped down as the leader of the Liberal Party and is awaiting a cessation of power to his successor, has vowed to retaliate decisively to any US tariff measures.
His administration is exploring retaliatory strategies, including tariffs on American goods that are strategically significant to key US industries and voter bases.
According to Trudeau, such measures would aim to pressure the US administration into reconsidering its protectionist policies while also shielding Canadian interests.
“If the president does choose to proceed with tariffs on Canada, Canada will respond and everything is on the table,” Trudeau told reporters during a news conference on Tuesday.
“I support the principle of dollar-for-dollar matching tariffs. It’s something that we are absolutely going to be looking at if that is how they move forward."
What investors should be concerned about
While Canada has already dealt with tariffs during Trump’s first presidential stint, this time things could get much, much worse.
“Proposed tariffs will be a very serious issue for the Canadian economy given its already very weak fundamentals versus Trump’s previous presidency,” explains Stephen Johnston, a private equity manager and director of Omnigence, a Canadian private equity firm, during a recent Money.ca interview.
“We can expect an increase in inflationary pressures, such as loss of purchasing power from Canadian dollar weakness, and recessionary pressures like increasing current account deficit and GDP contraction.”
This will increase the volatility of Canada’s current economic climate, which Johnston refers to as “stagflation,” which combines positive inflation with lower nominal gross domestic product (GDP) per capita growth, resulting in negative real GDP per capita.
Investment and market strategies: What’s next for investors
Amid these uncertainties, economic experts are urging Canadian investors to adopt a proactive approach.
Diversifying export markets could reduce reliance on the US., mitigating the impact of potential tariffs. Additionally, investors are advised to prepare for market volatility by reassessing their portfolios and exploring opportunities in sectors less vulnerable to trade disruptions.
Such industries include:
- Farmland
- Automotive maintenance
- Environmental services
- Building products distribution
It’s also crucial for investors to stay informed about policy developments and economic indicators. Monitoring updates from both American and Canadian governments can provide insights into the likelihood and timing of tariff implementation.
Bottom line
President Donald Trump’s remarks at Davos underscore the unpredictable nature of international trade policy in today’s erratic political climate.
For Canadians and Canadian investors, vigilance and adaptability are key to navigating this period of uncertainty. By diversifying markets and portfolios, businesses and individuals alike can bolster their resilience against potential trade disruptions and ensure a more stable financial future.
Sources
1. Government of Canada: You’ve been lied to, Ramit Sethis says, by Vishesh Raisinghani (Dec 8, 2023)
2. TD Economics: Setting the record straight on Canada-U.S. trade, by Marc Ercolao and Andrew Foran (Jan 21, 2025)
3. CTV News: Trump tells World Economic Forum U.S. doesn’t need Canadian oil, gas, autos or lumber, by Luca Caruso-Moro (Jan 23, 2025)
This article Trump says USA doesn’t need Canadian oil, gas, autos or lumber: How this stance could impact Canadian industries and investors originally appeared on Money.ca
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
