U.S. elections: What’s at stake for U.S. and Canada trade policy?

Trade policy is a central issue in the U.S. federal election, particularly for Canadian observers. Donald Trump advocates for increased protectionism, while Kamala Harris opposes broad tariff increases but supports tougher environmental standards in trade deals. Although there are significant stakes for Canada, there are reasons to hope that some of the more severe scenarios can be avoided.

The Republican platform is protectionist, proposing measures like the Reciprocal Tariff Act to raise U.S. import tariffs to push for “fair and reciprocal trade deals.” It also calls for large tariffs on Chinese goods and banning imports of “essential goods” from China.

A Trump administration might face challenges in passing the USMCA (US, Mexico and Canada free trade agreement) review scheduled for 2026 due to the widening trade deficit with Canada and Mexico. Instead of a full renegotiation, fine-tuning or side deals might be more likely. The GOP platform’s call for “baseline tariffs” could be a negotiating tactic rather than a final objective.

The platform suggests large tariffs on Chinese goods to reduce America’s reliance on Chinese products. However, this shift won’t happen quickly due to China’s dominant share in global manufacturing capacity. Trump has also considered using tariff revenue to replace income taxes, but the math doesn’t add up.

Biden’s administration has seen fewer frictions with Canada but retained Trump tariffs on Chinese goods and increased tariffs on items tied to energy transition. Massive U.S. subsidies for chips and renewable energy products have pushed Canada to subsidize its electric vehicle sector and impose tariffs on Chinese competitors.

As a senator, Harris opposed trade deals like the USMCA and Trans-Pacific trade deals due to insufficient environmental protections. On the campaign trail, she criticized Trump’s tariffs as a tax on consumers. Harris is likely to be less protectionist than Trump but might retain a protectionist stance on trade with China.

Canada has managed to hold its ground in the global market, with its share of U.S. imports and global trade leveling off. Canada has gained some market share in areas where Chinese goods were hit by tariffs, particularly in inputs for U.S. production.

A Trump administration could significantly deteriorate the backdrop for Canadian exports. Trump’s steel tariffs in 2018 caused a 35% drop in Canada’s exports of manufactured metals to the U.S., shaving off about 0.5% from nominal GDP. Broad tariffs on Canadian exports could have wider economic impacts, incentivizing companies to seek U.S. locations for products destined for the American market.

The most hawkish versions of Trump’s trade agenda would entail self-inflicted wounds, suggesting these are threats aimed at leverage with trading partners rather than realistic policy directions. Import tariffs are significantly borne by Americans, and substantial evidence shows material negative impacts on U.S. exporters from retaliatory tariffs.

Tariffs could raise living costs for U.S. households and negatively impact American manufacturers due to increased input costs. The U.S. dollar would likely climb, preventing America’s trade balance from improving. Tariffs on China have not prevented a further decline in U.S. manufacturing employment, which reflects mechanization and productivity gains.

Under a Trump administration, there’s a risk of increased protectionism and significant tariffs, which could harm both the U.S. and Canadian economies. Under a Harris administration, there might be a continuation of current trends with a focus on environmental standards and less aggressive protectionism, particularly towards China.

Thanks to the CIBC Economics team for their insights!

Read the full report (PDF, 260 KB) Opens a new window.. Or play the podcast Opens a new window..