The threat of hefty U.S. tariffs should prompt policy shifts by Canada to placate the newly-elected U.S. administration, economists at National Bank Financial Inc. (NBF) are suggesting.
According to their report, the threat of a comprehensive new 25% tariff on Canada’s $600 billion worth of annual exports to the U.S. “would place immense strain on our already fragile economy.”
That said, the report said the threat of tariffs is likely a tactic to achieve U.S. geopolitical objectives. And it noted that it’s unlikely these tariffs will actually be introduced in the face of likely Congressional opposition, potential legal action, and the risk that this would damage the U.S. economy by sparking inflation and disrupting financial markets.
“The bad news is that if the threat of mass tariffs lingers over the long term, it could undermine Canada’s reliability as a destination for companies seeking guaranteed access to the U.S. market,” it warned.
“Additionally, Canada’s close economic and political ties to the U.S. mean we cannot afford to diverge too far from its regulatory, tariff, defence or fiscal policies,” the report said.
To that end, the report calls for Canada to more closely aligning its economic policies with U.S. policies, increasing defence spending, and stepping up border security.
“The sooner Canada recognizes its role within what many analysts describe as a “Fortress North America” economy — amid a world increasingly divided into spheres of influence — the sooner it can implement the economic reforms necessary to secure long-term benefits,” it said. “This is a relatively small price to pay to protect and preserve our critical access to the U.S. economy.”
Additionally, Canada should seek to cement its position as a supplier of electricity to the increasingly power-hungry U.S. economy, the report suggested.
“Our country has the capacity to step up, but this potential is jeopardized by Ottawa’s current plan to decarbonize the electricity grid,” it said. “We must urgently rethink this policy and strategically leverage our energy sector to strengthen Canada’s role within the North American supply chain.”
Securing access to the U.S. economy by aligning Canadian policy with the new U.S. administration’s vision, “is essential to addressing Canada’s productivity challenges and reigniting per capita GDP growth — a crucial driver for achieving better wealth distribution and overall prosperity,” it concluded.