Trade tensions between the United States and Canada are heating up as whispers of potential tariffs loom over the border. Already, the threat posed by Donald Trump’s administration has started to chill investment projects particularly within Quebec, catching the attention of Premier François Legault.
Legault is pushing for immediate renegotiation of the Canada-United States-Mexico Agreement (CUSMA or ACEUM) to counter the economic uncertainty brought on by trade threats. "I would like to see negotiations for the agreement as soon as possible," Legault stated during press conferences, emphasizing the need to alleviate the economic strain on businesses due to uncertain trade conditions.
According to the Wall Street Journal, Trump might implement 25% tariffs as early as February 1st. Legault voiced concerns, expressing, "There will be some uncertainty, and I have noticed when I was in business, uncertainty is as bad as bad news." His sentiment reflects the worries of many business leaders about how such tariffs could stall investments and cripple economic activity.
The economic forecast for the United States is not inspiring either. Frances Donald, chief economist at RBC, shared her insights during a recent event, highlighting, "We are not seeing recession, but not big growth either," elucidated the sluggish growth predictions. RBC anticipates modest GDP growth of 1.9% next year, alongside inflation rates remaining stubbornly high at 2.3%.
Donald also underlined the acute disparity within the American economy. She mentioned how consumer spending growth is disproportionately skewed toward high-income households, noting, "Only 20% of consumers spend 40 to 60% of available money—to many, this divide is widening since the pandemic, which has exacerbated wealth inequality.”
This disconnect between the vibrant service sector and the struggling manufacturing base is raising alarms. Economists often rely on manufacturing as a bellwether for the economy's health, and its prolonged contraction could signal troubling times ahead. Yet, as Donald observed, the traditional economic models are broken, and the service sector’s robustness is keeping the economy afloat—for now.
On the issue of labor, Donald made another compelling argument relevant to the looming tariffs: "The U.S. doesn't need jobs, they need workers." This distinction takes center stage as the U.S faces unprecedented labor shortages driven by demographic shifts. Donald explained, "Never before have there been so many retirees: 40% of Americans are not working.” This phenomenon is not simply due to young adults opting out of the job market, but rather, the labor force participation among prime-age workers remains near historical highs.
This situation raises questions about how tariffs might exacerbate inflationary pressures at home. Donald indicated, "The imposition of tariffs could lead to inflation shocks," illustrating the balance policymakers must strike. The potential impacts of Trump’s proposed immigration policies could exacerbate this scenario even more, creating tight labor conditions across the board.
But there may be strategic avenues to mitigate the effects of these threats. Sébastien Mc Mahon, chief strategist and senior economist at iA Gestion mondiale d’actifs, asserted, "If we removed interprovincial trade barriers in Canada, we could grow our GDP by 4%." His comments suggest one way Canada could potentially buffer itself against the negative economic effects of U.S. tariffs, urging Canadian policymakers to seize this opportunity for reform.
While the future might look challenging with the specter of tariffs overshadowing the trade relationship, it’s clear both countries need to engage proactively to safeguard their economic futures. With calls for action echoing from leadership like Premier Legault, the urgency for negotiations on CUSMA grows every day.
Many are hoping for clearer skies once the storm clouds of tariff threats clear, allowing businesses to thrive without the chokehold of uncertainty. Their resolve will dictate not just the course of trade relations but the broader economic landscapes of both nations.