What could Donald Trump cost Canada?

Here’s what we’re following in cross-border news this week, including a new report outlining the potential economic damage to Canada of another Trump presidency, ongoing worries from U.S. lawmakers about their northern border and new criticism around the slow pace of NORAD updates.?

The toll of tariffs?

Donald Trump’s signature economic policies would hurt Canada’s economy, shaving almost half a point off GDP by 2027. That’s the conclusion of a major new assessment by an independent think tank, the Peterson Institute for International Economics.?

The institute tried to measure the impact of three of Trump’s key policies: imposing a minimum 10 percent tariff on all imports (and 60 percent on imports from China); deporting millions of undocumented immigrants; and restricting the independence of the Federal Reserve.?

Canada would take a hit if Trump carries through on his tariff promises, according to the Peterson Institute. Real GDP would shrink by 0.4 percent, employment would be reduced by 0.75 percent, and the total cost to the economy would amount to US$60 billion over three years. Mexico would also suffer, underlining the dependence of both countries on the U.S. market.?

But the country hardest hit by Trump’s policies, say the report’s authors, would be the United States itself. Depending on how those policies were applied, U.S. real GDP would be between 2.8 and 9.7 percent lower than their baseline assumption. Employment would be 2.7 to 9 percent lower. And inflation would be 4.1 to 7.4 percentage points higher. Consumer prices, they write, would be 20 to 28 percent higher by 2028.?

American consumers would be hurt because tariffs would drive domestic prices up, mass deportations would choke off the labour supply, and investment into the U.S. would fall. Together, those measures would “significantly worsen the standard of living of Americans.” Ironically, the institute concludes, “while Trump promises to ‘make foreigners pay,’ our analysis shows his policies will end up making Americans pay the most.”?

It’s far from clear, however, exactly how Trump would roll out those policies if he does return to the White House after November’s presidential election. Some of his key advisers have referred to them as essentially a “bargaining chip” with other countries.?

PPF Fellow Steve Verheul, a former chief trade negotiator for Canada who led the renegotiation of NAFTA four years ago, adds these thoughts: “Although some have (hopefully) said Donald Trump’s tariff proposals would be a bargaining ploy to force concessions from trading partners, and industry opposition in the U.S has been becoming more vocal, his consistent interest in tariffs leaves a distinct possibility that they would be applied.?

If Trump does this, it would be a breach of virtually every trade agreement to which the U.S. is a party; it would have significant negative impact on the U.S. economy; and it would inevitably lead to widespread retaliation.?

It would also put Canada in a difficult position. If Canada obtained an exemption from the U.S. tariffs, this country would then be under pressure to align its external tariffs with the U.S. to avoid becoming a back door to the U.S. market. The recent decision by Canada to match U.S. tariffs on electric vehicles and steel and aluminum demonstrates a shared desire to protect the North American market. But Canada matching U.S. across-the-board tariffs would create significant difficulties with Canada’s other trading partners. Canada would be caught between having preferred access to the U.S. market and significantly increasing frictions with every other market.”?

Concern on the border

New York Senator Kirsten Gillibrand has added her voice to others concerned about a spike in the number of migrants crossing into the United States from Canada.?

Gillibrand, a Democrat who has been the junior senator from New York since 2009, introduced a bipartisan bill designed to strengthen security at the border. The number of migrants crossing from Canada more than tripled from 2022 to 2023, she said. “It’s time to give the northern border the attention it deserves and do what needs to be done to keep vulnerable people and our northern border community safe,” she told journalists.?

The legislation she is co-sponsoring with senators Maggie Hassan of New Hampshire, a Democrat, and Kevin Cramer of North Dakota, a Republican, is called the “Northern Border Security Enhancement and Review Act.” It would require a threat analysis along the northern border to be completed every three years and order the U.S. Department of Homeland Security to update its northern border strategy after each analysis.?

New York Congressman Nick Langworthy, a Republican, introduced a companion bill in the House of Representatives in June.?

The sharp increase in illegal crossings has prompted Donald Trump to warn of an “invasion” across the northern border, even though the numbers are miniscule compared to the flood of migrants on the U.S.-Mexico border. U.S. media outlets ranging from Fox News to National Public Radio have run major stories about the pressure on the Canadian border, ramping up pressure on American politicians to respond.?

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‘Mattering more’ on energy?

PPF’s report on how Canada can ‘matter more’ in the world — and especially with its key ally, the United States — says this country should leverage its enormous resources to reach a comprehensive Energy and Environment Pact with Washington.?

Energy and the environment is one of four key areas that Canada should target in a series of cross-border agreements modelled on the U.S.-Canada Auto Pact of the 1960s.??

On the energy side, says the report, such a pact should include strengthening the North American electricity grid; accelerating?construction of small modular reactors (SMRs) to produce more nuclear power; increasing?uranium production to free the West from dependence on Russian supplies; and building facilities for the export of liquid natural gas (LNG).?

On the environmental side, Canada should promote technologies for carbon capture and storage; develop a common border adjustment mechanism with the U.S. to factor carbon costs into imports; and export the concept of coal-to-gas switching to reduce overall emissions. The full report can be found here.?

A slow start on NORAD

The federal government is off to a slow start on its plan to modernize Canada’s contribution to the North American Aerospace Defence Command (NORAD). Documents obtained by the Toronto Star show less than half the money earmarked to get the project going in its first two years has actually been spent.?

As of June, the government had spent $69.7 million on the first stages of the 20-year plan. That’s far less than the $174 million put aside in the fall 2022 economic update for “continental defence and NORAD modernization” by the end of the 2023-24 fiscal year, which ended in March.?

A government spokesman told the Star the Department of National Defence is still “laying the groundwork” for the NORAD plan. But James Bezan, the Conservative shadow minister for defence, said the slow pace of spending shows the Liberal government is not meeting its “commitment to NORAD to keep Canadians safe.”??

NORAD was founded in 1958 as a joint U.S.-Canada partnership to detect and defend against threats to the continent. Canada’s plan to modernize its contribution was announced in 2022 and involves spending $38.6 billion over 20 years — including $4.9 billion in the first six years.?

David Perry, a defence procurement expert with the Canadian Global Affairs Institute, said the slow start to spending isn’t unusual. But he said it’s a “perfect encapsulation” of how the government needs to show more urgency on its NORAD plan and on its wider commitments to meet NATO spending targets and boost Canada’s military presence in the Arctic.?

‘No sense of urgency’

A forum on security in the Arctic heard a similar message from a retired U.S. air force general who commanded NORAD until earlier this year.?

Gen. Glen VanHerck told the forum organized by the Mackenzie Institute that the Trudeau government’s updated defence policy, which includes pledges to acquire new fighter jets and submarines, is the right idea. “I look forward to seeing those actions but there’s not a history of (Canada) taking those actions,” he said.?

“There is no sense of urgency, for the most part, from the leadership of the government of Canada. It is easy to say we’re going to buy F-35 (fighter jets), we’re going to buy submarines. But with that comes a lot of requirements to build infrastructure, set up logistics pipelines, set up training pipelines. And my question is, is Canada ready to do that?”?

VanHerck was one of several retired officers and experts who questioned Canada’s defence commitment, especially in the Arctic as Russia increases its presence in the region. Former general Andrew Leslie, who commanded the Canadian army before serving as a Liberal MP from 2015 to 2019, said that has damaged relations with the United States.?

“There’s one issue that seems to galvanize and unify Republicans and Democrats, both in the House of Representatives and the Senate,” said Leslie. “That is their concern and dismay over Canada’s paltry contributions to international peace and security and the unacceptable — and I’ll use that word again, unacceptable — levels of money spent on defence capability.”?

The price of smoother travel

Travellers who want to smooth their trips across the Canada-U.S. border are finding that’s more expensive this week. The cost of applying for the Nexus trusted-traveller program jumped by 140 percent on Oct. 1 —?from US$50 to US$120.?

The Canada Border Services Agency said the $50 fee was set two decades ago and didn’t cover the cost of administering the program. It said the higher fee will allow for speedier processing of applications and investment in updated technology and infrastructure.?

Travellers holding a Nexus card, which is good for five years, can use the faster Nexus border control lanes at airports and major land crossings. It’s the price of convenience.?

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