Trump’s Day One and What it Means for Canada

Donald J. Trump was inaugurated as the United States’ 47th president. Even prior to the swearing in, President Trump has had an outsized impact on the U.S. and the world. Canadians were particularly anxious given his 25% tariff threat and musings about making Canada the 51st state. 

A *Temporary* Sigh of Relief 

News that tariffs weren’t part of Trumps initial measures as President led to a collective sigh of relief amongst Canadians. However, with 77% of Canada’s exports destined to the U.S. (valued at $594.5 billion in 2023) and Trump’s fondness for tariffs, any relief from this anxiety is bound to be short-lived. 

Trump’s inauguration speech and first official White House statement preview his immediate priorities. They overview his intentions on everything from substantive policy issues, (e.g., immigration, inflation reduction, energy, trade policy) and provide red meat for his base (the “department on government efficiency,” the “weaponization of the justice system,” combatting “social engineering” policies on race and gender) to his recent leanings to territorial expansion (the Panama Canal, landing on Mars, and renaming the Gulf of Mexico the Gulf of America). 

Immigration Policy 

Fortunately for Canada, his speech did not make an explicit reference to Canada.  

Mexico was not so lucky. Front and centre is the announcement that he would invoke a national emergency at the southern border. This will entail stationing the Armed Forces there, implementing the “Remain in Mexico” policy, and that he would use powers of the Alien Enemies Act of 1798 to go after cartels and crime.  

Trump will carry out his vaunted deportation operation and suspend refugee resettlement programs. While Canada wasn’t targeted, it could be implicated as his threats of mass deportations could lead to swelling of illegal border crossings into Canada. 

Energy Policy 

His economic plan to reduce inflation and boost affordability could be a double-edged sword for Canada. Trump laid out that inflation was a consequence of massive overspending and an artificially expensive energy, which he blames on “Biden’s policies of climate extremism.” 

This emphasis on energy security could bode well for Canada as it stares down tariffs. To the extent that Premier Doug Ford is serious about his retaliatory threat to leverage electricity exports should Trump target Ontario’s auto sector, then he may have an ace up his sleeve.  

However, Trump’s plan to revive manufacturing through abundant oil & gas also includes doubling down on “Drill, Baby, Drill” through “streamlining permitting, and reviewing for rescission all regulations that impose undue burdens on energy production and use, including mining and processing of non-fuel minerals.”  

As Canada competes with the U.S. for investment in traditional and non-traditional energy sources alike, his regulatory overhaul will create a competitive hurdle that will be difficult for the current Canadian government to overcome.   

Trade Policy  

The issue most on Canadians minds is the threat of crippling tariffs. Trump’s Truth Social post from November that he would implement a 25% tariff on day one sparked a national crisis and a flurry of proposals from politicians at all levels of government.  

However, to the surprise of many, Day One did not include the imposition of tariffs. Rather, he limited his trade statements to announcing a “External Revenue Service” to collect “massive amounts of money pouring into” the country from “foreign sources.”   

Insiders in Washington D.C. have suggested that Trump’s tariff announcement was stalled due to internal disagreement and in-fighting over the best approach. Trump will instead announce his “America First Trade Policy” after scrutinizing individual trade relationships. Today’s limited attention on trade in no way signals that Trump has changed his tune on trade deficits, so any country running a trade surplus with the U.S. will remain on edge.  

This additional time is beneficial for Canada. It allows for Canada to further make its case that there are perception issues clouding the debate on Canada’s surplus with the U.S. In 2023, Canada’s goods trade surplus was $220.8 billion, which is the number that Trump focuses in on.   

The energy sector accounts for 28% of the value of Canada’s total exports to the U.S. When energy is removed the surplus shrinks to $54.3 billion.  

Furthermore, the accounting on the energy surplus doesn’t factor in that Canadian oil exports are sold into the U.S. at a substantial discount. When services trade is considered, it is Canada that runs the deficit with the U.S., which stood at $13.8 billion in 2023.  

Sectoral Breakdown of Canada’s Goods Trade with the U.S., 2023 

Source: StatsCan’s International Trade Explorer 

Looking Ahead After Day One 

The worst of Canada’s economic fears have been averted for now. Canada has bought some time to engage with Team Trump and sort out its own Team Canada approach, especially given Alberta Premier Danielle Smith’s statement that she would not accept Canada-imposed embargoes or export taxes on its energy or other products.  

While Trump didn’t mention Canada during his inauguration speech, he made a chilling reference to territorial expansion when he claimed that “the United States will once again consider itself a growing nation, one that increases our wealth, expands our territory, builds our cities, raises our expectations, and carries our flag into new and beautiful horizons” (emphasis added).  

Canada’s trade remains overwhelmingly tied to the U.S. and it is this fundamental condition that has made us vulnerable to Trump’s threats. The threat of tariffs and its attendant risks still hang over Canada after January 20th.