The reality of Donald Trump re-taking the Oval Office has set the global news cycle abuzz with speculation and analysis. A particularly intriguing topic for Canadians is the potential impact of a new Trump presidency on our economy. It’s a complex topic involving theories on tariffs, inflation, housing demand and supply, as well as the implications of potential U.S. policies like mass deportations, mega corporate tax cuts, and increasing national debt. The relationship between Canada and the U.S. is not just one of geographical proximity; it's an intricate tapestry woven from decades of economic cooperation and shared prosperity. That is why Canada could be one of the hardest hit by a possible trade dispute with the new Trump administration. All of this is important for the real estate market because it is so closely tied to the overall strength of the economy.

The Impact of Tariffs on the Canadian Economy

In a move that rippled through the North American economy, Trump recently introduced the threat of high tariffs on goods imported from the U.S.’s North American trading partners. At a recent meeting between Prime Minister Justin Trudeau and the president-elect, Trump said he would impose a 25% tariff on imports from Canada and Mexico. Trump told Trudeau that Canada and Mexico have failed the U.S. by allowing large quantities of drugs and illegal immigrants to flood through the borders. Sources say Trump became more animated when it came to the U.S. trade deficit with Canada, which he estimated to exceed $100 billion. The president-elect told the prime minister that if Canada cannot fix the border issues and trade deficit, he will levy a 25% tariff on all Canadian goods as soon as he takes office on January 20. 

Why does this matter? It matters because more than 75% of Canadian exports go to the U.S. New tariffs could have a disastrous effect on our economy. A Canadian Chamber of Commerce report released last month suggested they would drastically shrink Canada’s GDP, resulting in around $30 billion per year in economic losses. 

Sector-Specific Impacts

The effects of these tariffs could be felt unevenly across different sectors of the Canadian economy. The manufacturing sector in particular stands to bear the brunt of increased production costs. Tariffs could lead to higher vehicle prices, reduced demand, and a subsequent loss of jobs in both countries. Canadian Manufacturers & Exporters President and CEO Dennis Darby said recently that Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs.

Agriculture is another sector poised to feel the impact. U.S. tariffs could close off or at least diminish access to the largest market for Canadian agricultural exports, forcing farmers to seek alternative markets, often at lower prices. The long-term effects could include a shift in crop choices, shrinking investment in agriculture, and a possible rise in domestic food prices.

Potential for Trade Wars and Retaliation

The spectre of a tit-for-tat trade war looms large over these tariffs. Canada, in response to U.S. actions, may feel compelled to impose its own retaliatory tariffs, further escalating tensions. Such a scenario would not only exacerbate the economic fallout in both countries but could also disrupt global trade patterns. The uncertainty generated by a potential trade war adds an additional layer of complexity for businesses trying to navigate these turbulent waters. This could weigh on an already weak Canadian dollar.

Disruption of Trade and Supply Chains

At the heart of the issue is the disruption of the deeply integrated supply chains that have been a cornerstone of the North American economic success story. Canada and the U.S. do not merely trade goods; they build products together. From automobiles to aerospace, the industries that have thrived on the seamless movement of parts and materials across borders are now facing a period of uncertainty. The imposition of high tariffs by the U.S. threatens to increase costs, delay production timelines, and ultimately make North American manufacturers less competitive on the global stage.

Introducing tariffs is seen by many as a step back from the principles of free trade and has sparked significant concern regarding its potential impact on the Canadian economy. If Canada doesn’t make some significant changes to its economic policies, it may result in a recession for years to come. 

So, what effect could this have on real estate? While the recent reductions in interest rates have offered some relief to buyers, it is not a guaranteed solution if broader economic challenges arise. A recession driven by tariffs, disrupted trade, or other economic factors could lead to another slowdown in real estate activity, even as borrowing costs decrease. As we navigate these uncertain times, understanding the interplay between economic policies and housing is crucial for both buyers and sellers. At TEAM BROADY, we have weathered many storms and will continue to do so with perseverance and optimism. Here's to a future that, despite its uncertainties, still holds promise and progress. Please consider us for your next real estate transaction. We can be reached at 514-613-2988 or by email at info@teambroady.ca.