The Canadian economy is experiencing escalating disruptions since the return of U.S. President Donald Trump to the White House, as his repeated threats to impose tariffs on Canadian exports, along with his statements about wanting to make Canada a U.S. state, have led to increased economic pressures on the country.

Escalation of the trade war and decline in economic confidence

The renewed trade war between the United States and Canada has contributed to a rapid deterioration in the level of economic confidence in Canada. Imposing tariffs on Canadian exports could have a catastrophic impact on the Canadian economy, as the U.S. market represents the main artery for Canadian exports. Canadian exports to the United States account for about 78% of Canada's total exports, while Canada holds 14% of total U.S. imports.

Moreover, trade with the United States is more significant than domestic trade among Canadian provinces themselves. In 2023, the value of internal trade among Canadian provinces reached CAD 532 billion, while the value of Canadian exports to the United States hit CAD 700 billion, underscoring the Canadian economy's heavy reliance on the U.S. market.

Decline in business and consumer confidence

The repercussions of the trade war have been clearly reflected in the confidence of the business sector and consumers in Canada. The index of small business confidence fell by about 60% within just a few months, recording its lowest level since the global financial crisis of 2008. Even during the lockdown crisis in March 2020, confidence levels were about 10 points higher than they are now.

At the same time, the consumer confidence index has dropped to 25 points, the lowest level recorded in Canadian history. The rate of this decline is faster than it was during the lockdown crisis that followed the coronavirus pandemic, reflecting deep anxiety within Canadian economic circles.

Population growth and declining productivity

Despite Canada experiencing a population growth exceeding 9% since 2020, this growth has not translated into an increase in economic output. Real GDP per worker declined by 2% during the same period, indicating a decline in productivity in the Canadian economy.

Housing crisis and rising prices

The Canadian economic crisis is exacerbated by a severe housing shortage, which has led to unprecedented inflation in property prices. Housing prices have increased by 300% since 2000, making homeownership in Canada out of reach for many citizens. Canada is currently experiencing a structural deficit estimated at around 250,000 housing units each quarter, while the pace of housing construction has been declining since 2021, all while demand for housing doubles.

Rising inflation and the impact of tariffs

On the inflation front, the Consumer Price Index inflation rate rose from 1.9% to 2.6% year-on-year in February 2024, higher than the expected 2.2%. Most alarmingly, this data does not yet fully reflect the impact of U.S. retaliatory tariffs, meaning that the inflation rate could easily rise above 3% in the coming weeks.

Bleak future for the Canadian economy

The current economic conditions present the Canadian economy with complex challenges, facing a combination of declining confidence, slowing growth, a constrictive housing crisis, and rising inflation. Under these circumstances, escalating the trade war with the United States could deal a crippling blow to the Canadian economy, making it necessary to implement strong and swift economic strategies to emerge from this crisis.