By Michael O’Neill

Hola Amigos!

For years, whenever the Canadian dollar took a beating against the greenback, pundits had a good chuckle calling it the “Northern Peso.” Not so funny now, is it?

Trump’s tariffs are set to wreak havoc on Canada’s economy. Even BoC Governor Tiff Macklem agrees. He warns that a 25% levy on non-energy exports and a 10% hit on energy exports will gut economic growth. Unlike the pandemic-induced recession, which had a sharp rebound, Macklem says this time is different. The damage would be permanent—wiping out nearly 3% of GDP over two years and leaving Canada on a lower growth trajectory indefinitely.

The BoC’s numbers are ugly. Exports would sink 8.5%, consumption would drop over 2%, and business investment would crater nearly 12%. Canada’s economy eked out an estimated 1.3% growth in 2024, while the U.S. powered ahead at 2.8%. Now, Macklem says Trump’s tariffs will permanently slash Canada’s output by 2.5%.

That’s recession territory.

“Brother Can You Spare a Dime?”

“They Used to Tell Me I Was Building a Dream With Peace and Glory Ahead,
Why Should I Be Standing in Line Just Waiting for Bread?”

Yip Harburg wrote those lyrics in 1931, and here we are—nearly a century later—wondering the same thing.

Today, during his morning “sit-down,” Trump must have noticed an exposed copper pipe and took to TruthSocial to rant, “Our Great American Copper Industry has been decimated by global actors attacking our domestic production.” He went on to announce he had ordered a probe in a first step for additional levies.  

Canada may be considered one of the “global actors,” as 56% of mineral exports (as of 2023) go to the USA, and copper is 6% of the total.

If Trump follows through on his tariff plans, Americans will be hurt, but Canadians will be maimed. The U.S. economy is far larger and more diversified. Canada? Not so much.

Three-quarters of our exports—CAD 592 billion in 2023—head south. Trump’s tariffs mean CAD 15 billion in duties on energy exports and CAD 110.5 billion on everything else.

British Columbia alone expects a CAD 69 billion hit over four years. And that’s just one province.

In Ontario, auto-part manufacturers like Magna and Linamar would feel the pain first.

In B.C, the forestry sector already took a hit in 2017 when Trump slapped duties on softwood exports. It is likely to be worse this time.

Alberta is already dealing with an anti-energy Federal government and Trumps tariffs on energy exports will ensure capital investment evaporates completely.  

There is still hope.  California needs Canadian lumber to rebuild from the wildfires and for now, the US does not have an alternative to Alberta’s heavy crude.

Put That in Your Pipeline and Smoke It

Trump famously told energy companies to “Drill, Baby, Drill.” Yesterday, he tweeted:

“The company building the Keystone XL Pipeline (it was TC Energy, formerly TransCanada Pipelines) that was viciously jettisoned by the incompetent Biden Administration should come back to America and get it built—NOW!”

Facts have never gotten in Trump’s way before. Why start now? (Remember—Ukraine started the war with Russia.)

But, if Canada had a leader who could stand up to Trump, he or she could adopt the same strategy. They could join TruthSocial and tweet:

“Canada announces the Chinese-funded Keystone Xi L, pipeline, a 10-million-barrel/day sister of the existing Trans Mountain Pipeline, which will serve China’s energy demands for years from the West Coast—at full price.”

It’s not going to happen of course, but the thought alone would be enough to make Xi Jinping smile and some in Washington choke on their coffee.

Pipe Dreams and Pesos

Pipe dreams aside, a trade war spells disaster for the Canadian dollar. And judging by the current USDCAD level (1.4230), the currency market hasn’t priced it in yet.

The Canadian economy is treading water. Business investment is weak. Job growth, while appearing strong, is mostly due to public sector hiring. Most traders still think that even if a trade war happens, it’ll be short-lived. If that’s true, then we’ve probably seen the top for USDCAD this year.

But what if it’s not? What if this drags on for years? And don’t forget—Trump has floated even higher tariff rates.

Technically, a decisive move above 1.4622 sets up a run to 1.6200, a level last seen in January 2002.

The Loonie isn’t a Peso yet—but it’s trying on sombreros.

Sources: Government of Canada, CBC