Reigniting talks of Canada becoming the “51st state” of America
During his address last week, 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, for now, are on hold.
“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.”
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Get A QuoteEconomic 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.
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Find Your Card NowThe Canadian government retaliates
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, on Saturday announced retaliatory measures, including tariffs on American goods that are strategically significant to key US industries and voter bases.
According to Trudeau, such measures aimed to pressure the US administration into reconsidering its protectionist policies while also shielding Canadian interests.
"If President Trump wants to usher in a new golden age for the United States, the better path is to partner with Canada, not to punish us," Trudeau said at the press conference.
"Canada has critical minerals, reliable and affordable energy, stable democratic institutions, shared values and the natural resources you need. Canada has the ingredients necessary to build a booming and secure partnership for the North American economy, and we stand at the ready to work together."
In response to Saturday's announcement from Trudeau and subsequent conversations between the two leaders on Monday, the tariffs are on hold — for now.
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)
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