For Trudeau’s successor, protecting Canada’s economy is a ‘tough’ task. business and economy news

The return of United States President Donald Trump to the White House has shocked managers of Canada’s $2.1 trillion economy.

Already grappling with domestic pressures like stagnant growth and the housing crisis, Ottawa now faces the threat of tariffs from the United States, its largest trading partner.

Economists say Trump’s promise to take the US on a protectionist path poses huge challenges for whoever replaces the country’s deeply unpopular outgoing leader, Prime Minister Justin Trudeau, ahead of national elections in early May.

“Whoever takes over from Trudeau is going to have a tough task because there is a small ramp from there to early elections,” Tony Stilo, director of Canada economics at Oxford Economics, told Al Jazeera.

“It is very difficult. Voters appear ready for change and Trudeau may be able to muster popular support for the Liberal Party with a fresh face, but it may not be enough.

While the tariffs were barely mentioned in Trump’s inaugural speech on Monday, any hopes of relief vanished hours later when he announced he could impose 25 percent tariffs on Canada and Mexico by Feb. 1.

“What happens to Canadian exports in the event of a tariff war with the U.S. — that’s a huge determinant of economic outcomes because 80 percent of our exports go to the U.S. and that’s a huge weakness,” said Lars Olsberg, an economics professor at Dalhousie. Is.” The university in Halifax, Nova Scotia, told Al Jazeera.

Canada’s exports to the United States alone account for approximately 20 percent of its gross domestic product (GDP).

Stephen Brown, deputy chief economist for North America at Capital Economics, told Al Jazeera that the 25 per cent tariffs would have a “significant” impact on the Canadian economy, potentially leading to a recession.

However, Brown said Trump’s tariff threats could be leverage in negotiations over the United States-Mexico-Canada Agreement, which is up for review next year. Trump is a negotiator and “will look for concessions so he can say he got a good deal,” Brown said.

Trump has made clear that there are three areas of concern regarding Canada: the trade deficit, border security and Canada’s relatively low defense spending in NATO.

If Ottawa chooses to buy more defense equipment from the United States, Brown said, it could dispose of them in one fell swoop, which would enable it to meet NATO spending targets and increase border security.

Canadian officials also have some leverage, he said, because the country provides about 20 percent of the crude oil consumed south of the border and could theoretically shut down the supply.

Last week, Canadian Foreign Minister Mélanie Joly told reporters that Ottawa is prepared to respond with tariffs.

“And we’re ready for round two and we’re ready for round three,” Jolie said.

Following Trump’s comments Monday night, Canadian Finance Minister Dominic LeBlanc said it would be “a mistake” for the US to move forward with tariffs.

“That would be a mistake in terms of the cost of living in the United States, in terms of jobs in the United States, in terms of the security of supply chains,” LeBlanc said.

Oxford Economics said in a note on Tuesday that the North American trade war would be a major blow to the US economy, resulting in slower growth and inflation, unemployment and rising petrol prices.

That said, there’s also the reality of an “idiot” prime minister that the US administration will have to deal with, Stilo said.

domestic pressure

Besides Trump, Trudeau and his Liberal Party are under pressure on the domestic front amid widespread discontent about unaffordable housing and the state of public services like child care and health care.

Another drag on the government’s popularity has been the carbon tax, which has become a rallying cry for the opposition Conservative Party led by Pierre Poilievre.

Introduced in 2019 to promote the transition to clean energy, the tax has quadrupled to 80 Canadian dollars ($55.5) per tonne and is projected to reach 170 Canadian dollars ($118) by 2030.

To this effect, opposition leader Poilievre has promised to “axe the tax”.

While repealing the tax would reduce petrol pump prices by 25 cents per litre, scrapping the carbon pricing scheme would also end rebates provided to eligible individuals and households to offset higher fuel prices.

“Although the net impact on the majority of households is also likely to be small, it will vary for individual households depending on their specific driving habits,” Stilo said.

Then there is immigration.

While immigration helped Canada’s population grow by about 1 per cent on average each year over the past decade, the number of residents is projected to increase by 3.2 per cent between 2023 and 2024, the largest annual increase since the 1950s.

Blamed for increasing pressure on Canada’s housing, health care and education, Trudeau announced drastic cuts to migrant entry in October, upending many lives and business plans in the process.

“One of the tragedies of the Trudeau era is that the consensus on immigration seems to be quite shaky,” said Osberg of Dalhousie University.

In a survey released in October by the Environics Institute for Survey Research, 58 per cent of Canadians said the country accepts too many immigrants, an increase of 14 percentage points since 2023. This is followed by an increase of 17 percentage points between 2022 and 2023.

The increase in negative sentiment toward immigration over a two-year period was the sharpest change since the Environics Institute began asking the question in 1977, the institute said.

The results also showed that the proportion of Canadians who say there is too much immigration has reached its largest level since 1998.

While anti-immigration political parties have made little progress, a growing number of Canadians are expressing doubts for the first time about who is being allowed into the country and how well they are integrating into Canadian society.

For years, Canada focused its immigration policy on skilled immigrants, Olsberg said, except for a brief period after the COVID pandemic when small businesses complained they couldn’t find workers.

“Now you have people working on temporary worker visas at (coffee chain) Tim Hortons and (department store) Canadian Tire. They’re permanent jobs, but now you’re stuck with the consequences,” he said.

Some of the policy changes on immigration are already beginning to have an impact on the economy, including a reduction in the number of temporary resident visas issued. Along with the relaxation of mortgage lending regulations, housing is becoming easier to come by and rents are beginning to drop.

In addition to the slowdown in immigration that has helped fuel growth, the next government will also face long-term structural problems, including low productivity and weak business investment, experts said.

“Growing inequality and increasing insecurity create a lot of anger and anxiety,” Olsberg said.

“Then comes Covid, a big threat out of nowhere, then suddenly there is a big war in Europe. The world is changing around us. Pierre Poilievre has been very adept at focusing all his anger on Trudeau and now the agent of chaos, Donald Trump. All that anger and anxiety is the root set of issues.