The worst case scenario for Canada’s economy from the U.S. presidential election would be a Republican sweep — which would hit global output and increase trade strains — potentially even leading to a recession for Canada, according to economists with Desjardins Group.
In a report released Monday, the firm’s economists projected that a Republican win would be a worse outcome for the U.S. economy than a Democratic win, given the Republicans’ promises of sharply higher tariffs, reduced immigration and intensified protectionism.
Extrapolating that view to the Canadian economy, they forecast that a Republican sweep of both the presidency and Congress — which would facilitate the implementation of its agenda — would be the worst outcome for Canada.
To start, a Republican rout would “likely lead” to lower global and U.S. real GDP and higher tariffs on U.S. imports that would reduce demand for Canadian exports, the report said.
Additionally, increased energy production under a Republican administration would likely mean lower commodity prices, “reducing aggregate corporate profits and household incomes in Canada,” it said.
Some of these negative effects could be cushioned by corporate tax cuts and weaker regulation that support corporate profits and equity values, the economists noted.
“[A] rally in U.S. equities could be expected to have some positive spillovers to Canadian equities in the short term. However, the S&P/TSX would likely underperform against U.S. equities and struggle over time from lower energy prices and the drag on domestic growth,” the report said.
Weaker growth could also lead the Bank of Canada to cut interest rates more aggressively, resulting in a bigger spread between U.S. and Canadian rates that would weaken the Canadian dollar — and help to offset the impact of weaker trade, the report noted.
Overall, a Republican sweep in November could mean that Canadian real GDP comes in 1.3% weaker by the end of 2026, and “as much as 1.7% lower by the end of 2028,” relative to a Democratic win, the economists said.
“Looking at real GDP from a growth perspective, Trump’s proposed policies would slow the pace of economic gains in Canada. And while a recession may be narrowly avoided, it can’t be ruled out,” the report said. “With that in mind, businesses and policymakers would be well advised to hope for the best but plan for the worst.”