The Bigger Trump Factor for Canada’s Economy That’s Going Unnoticed

President Donald Trump, joined by Secretary of Commerce Howard Lutnick, signs an executive order on reciprocal tariffs in the Oval Office at the White House on Feb. 13, 2025. Andrew Harnik/Getty Images

News Analysis

On the same day this week that New Brunswick’s Irving Paper said it’s closing half of its operations in the province, Apple announced a US$500 billion investment in the United States.

Apple’s announcement came on the heels of Saudi Arabia committing to a US$600 billion investment in the United States in January, and an Emirati businessman pledging US$20 billion to build data centres in the country earlier the same month.

Meanwhile, the Tissue subsidiary of Irving, whose Paper division cited rising energy costs for cutting operations in Canada, announced a US$600 million expansion to its operations in Macon, Georgia, in late November.

While the threat of Donald Trump’s tariffs on Canadian exports is garnering most of the attention, whether in the news cycle or amid the Liberal leadership race, an issue that may be getting overlooked is how the U.S. president’s focus on cutting taxes and regulations and using other tactics to attract business is impacting Canada’s competitiveness in getting investments.

“Our real problem in Canada is our anti-business culture,” says Philip Cross, a former chief economic analyst with Statistics Canada, and now a senior fellow with the Macdonald-Laurier Institute.

Cross told The Epoch Times that since tariffs will also carry major burdens for U.S. consumers, the likelihood of the United States maintaining high tariffs on all Canadian exports for an extended period of time is low.

“Apart from tariffs, [Trump] is doing a lot of other things, like cutting corporate taxes and regulations and everything else that make the U.S. a much more attractive place to operate as a business. That’s the real threat, not the tariffs,” he said.

US Focus on Business

Trump has signed a number of executive orders to cut regulations and boost energy production since his Jan. 20 inauguration, and has also said he plans to cut taxes.

He has created a White House panel focused on achieving “energy dominance” while saying his agenda will “unleash American energy.”

An Apple logo adorns the facade of the downtown Brooklyn Apple store on March 14, 2020. AP Photo/Kathy Willens, File

A survey by The Conference Board released last week said that optimism among U.S. CEOs surged in the first quarter of this year compared to the previous one, rising by 9 points to 60, marking the first time since early 2022 that the index had a value “well above 50.”

During a Feb. 7 meeting between Trump and Japanese Prime Minister Shigeru Ishiba, the two leaders announced a joint venture for a liquefied natural gas (LNG) project in Alaska.

Meanwhile, as energy-deprived Europe is looking for new energy sources amid conflicts with Russia, Prime Minister Justin Trudeau said in 2022 that there was no “business case” for an LNG export terminal to Germany, and that the focus should instead be on “cleaner energy sources.”

“Trump is definitely focusing on energy,” Ross McKitrick, a professor of economics at the University of Guelph, said in an interview. “It was central to his approach in the first administration, but even more so now with his stream of executive orders. And he has signalled that he’s going to get energy costs even lower in the U.S.”

The combination of these activities is making the United States an attractive destination for investment, whereas Canada’s regulatory and taxation environment is having the opposite effect, he says.

“We are not attracting investment. Even our own industries aren’t investing here. They’re all sending their investment dollars elsewhere, especially south of the border,” McKitrick said.

A Bank of Canada analysis last March said that by 2022, Canada’s productivity had fallen to 71 percent of that of the United States. McKitrick says the gap has widened even further from this figure.

In terms of foreign direct investment, Canada has continued to be among the top-ranked countries, thanks to its educated workforce, rule of law, natural resources, and proximity to the United States.

But things could start to change more dramatically in terms of attracting investment, both foreign and domestic, as the United States is on the precipice of ushering in a new business-friendly environment while uncertainty grips Canada due to the threat of tariffs and a higher tax and regulatory environment compared to south of the border.

The Economic Policy Uncertainty index maintained by a group of U.S.-based economics professors shows uncertainty to be off the charts in Canada. While the average index in Canada since 1985 has been 158, it jumped from around 200 in early 2024 to 655 by December that year, and is currently sitting at 868, around twice the current global index of 460.

That level of uncertainty is “absolutely unprecedented” said Steve Ambler, professor emeritus of economics at University of Quebec in Montreal.

“And of course, what that means is that the investment climate for just about any kind of business investment you want to think of is just appallingly bad,” Ambler told The Epoch Times.

For comparison, in Mexico, which is subject to the same tariff threats as Canada, the uncertainty index jumped from around 50 in early 2024 to 152 in December and is currently at 224. In the United States, the index jumped from around 100 in early 2024 to 219 in December and is currently at 224.

Investments in oil and gas extraction in Canada started a declining trend since the plunge in oil prices in late 2014. And while investments began increasing since 2020 as prices recovered, they remain far below the record levels of 2014. An analysis by the Fraser Institute says investments in the sector fell from $76 billion in 2014 to $35 billion in 2023.

The study says Canada’s competitiveness in attracting energy investments is being adversely impacted by “environmental regulations, disputed land claims, regulatory duplication and inconsistencies, the cost of regulatory compliance and barriers to regulatory enforcement.”

Canada saw the cancellation of a number of major energy projects in recent years, with investors citing government regulations as the reason. Included among them is the Energy East pipeline project, which would have moved Alberta oil to Eastern Canada, and the Northern Gateway pipeline, meant to transport oil from Alberta to the B.C. coast for export to Asian markets.

There have been closures in other sectors as well, along with job losses. Amazon last month said it will close all its facilities in Quebec, laying off thousands of workers. The labour union has charged that the closure is due to the unionization push in the province, which Amazon denies, saying it’s related to cost-saving.

Tariffs Impact

A recent Bank of Canada analysis says if the United States proceeds with blanket 25 percent tariffs and Canada reciprocates in kind, Canada’s GDP growth would take a -2.5 percent hit in the first year, followed by another -1.5 percent in the second year, before going back to positive territory by the third year.

Steel coils lay in a plant in Hamilton on June 4, 2018. Cole Burston/Getty Images

The impact on Canada’s economy would be major, but McKitrick dismisses comments such as those by Liberal leadership candidates Mark Carney and Chrystia Freeland that Trump’s “economic war” is the biggest threat to Canada since World War II.

Canada has had several recessions in the second half of the 20th century and in the current century. It has also been mired in the West’s Cold War confrontation with a nuclear-armed Soviet Union, had two Quebec independence referendums, seen FLQ terrorist activities in the 1960s and 1970s, and most recently undergone extended business lockdowns during the COVID-19 years.

“We used to be a high-tariff country, and that was the case until 1988 when we entered into a free trade agreement with the U.S.,” said McKitrick, referring to NAFTA’s predecessor, the Canada-United States Free Trade Agreement, which was signed in 1988 and came into force in 1989.

He says there have been other economic downturns that have been more impactful to Canadians than what the Trump tariffs could bring.

“The recession of the early 1990s when interest rates went up to 10 percent, that was a far worse shock,” he said.

“The blow of the tariffs will be partly softened by our currency depreciating,” he added. If the loonie drops lower, Canadian prices would decrease for American importers, mitigating some of the impact for Canada’s export sector.

But it is not a certainty that Trump will follow through on blanket tariffs on Canadian goods.

His first wave of tariffs, set at 25 percent on all goods except Canadian energy products which are set at 10 percent, were meant to elicit action from Canada and Mexico to stop the flow of fentanyl and illegal immigration through their borders. The tariffs are currently on pause until early March, with Trump saying he wants to evaluate if the two countries have taken adequate action on border security.

Separately, he has set 25 percent tariffs on all aluminum and steel imports, including from Canada, which are supposed to come into force in early March.

As well, Trump has ordered his officials to review existing trade pacts, and further reciprocal tariffs may eventuate from that review, due by April, if the officials find any agreements that are currently to the disadvantage of the United States.

While discussing the prospect of imposing trade-related tariffs on Canada, Trump has variously mentioned the trade deficit his country has with Canada, which he said is between US$100 billion to US$250 billion.

The U.S. Bureau of Economic Analysis says the United States had a $67.9 billion deficit in the trade of goods with Canada in 2023. Canadian leaders, including Alberta Premier Danielle Smith, point out that the deficit is because the United States is buying Canadian oil at a discount, and with oil and gas excluded, the United States in fact enjoys a surplus in trade with Canada.

And while Trump has said on different occasions that his country doesn’t need any products from Canada, he said on Feb. 25 that he wants to revive the Keystone XL pipeline, a project to transport crude oil from Canada into the United States that was cancelled by the Biden administration.

“[Tariffs] will have inflationary impact, and of course Trump has promised to whip inflation in the U.S., so if inflation shoots up because of this, he might start thinking twice,” Ambler said. “And it’s also going to have an impact on growth in the U.S.”

Some of the items that are likely going to be pressure points as the United States reviews existing trade practices with Canada include supply management and Canada’s digital sales tax on streaming giants such as Netflix. McKitrick says Canada may also be stuck with the aluminum and steel tariffs as Trump likely wants to pay back steel workers in Pennsylvania for their support in the election, as well as implementing his broader vision of bringing back heavy industry to America.

A sign marks the border between the United States and Canada at Peace Arch Park, in Blaine, Wash., on Feb. 1, 2025. David Ryder/Getty Images

He says Canada can focus on getting tariff relief when it comes time to renegotiate the United States-Mexico-Canada Agreement (USMCA), which Trump has said he intends to revisit.

“That’s always been his negotiating style, to leave people guessing until the last minute,” McKitrick said.

Building Canadian Prosperity

Regardless of the mixed messaging from Trump, and the extent to which his talk of tariffs may be part of negotiation tactics, the threat of tariffs will likely not go away for Canada since each country has the right to decide how it will handle customs and tariffs at its own borders.

So how can Canada pursue a path of prosperity amid the prospect of tariffs?

“If there’s one silver lining, it might be that we could finally get serious about abolishing interprovincial trade barriers,” says Ambler.

An analysis by Deloitte Canada based on International Monetary Fund findings says that Canada could increase GDP by 3.8 percent if interprovincial trade barriers were removed.

Canada should also build cross-country pipelines to open up more markets for its oil and gas resources, he says.

Cross says Canada should be fixing its “anti-business culture” and reducing taxes and regulations, including removing levies on carbon emissions, especially since Canada is not a major global emitter of greenhouse gases when compared to the United States and China.

“I always agreed with [former Prime Minister] Stephen Harper that we should just adopt the same policies that the U.S. adopts about environmental protections and regulations, because otherwise we'll be putting our business at a competitive disadvantage,” Cross said. The Harper government had a focus on harmonizing emission standards with the United States.

McKitrick says removing regulatory and taxation burdens is especially important for sectors that would be more heavily impacted by U.S. tariffs.

“What we should be doing is looking at what kind of relief we can give to those sectors so that they can still stay competitive in the U.S. market,” he said.