The Ripple Effect: How the Recent U.S. Election Is Shaping Canada’s Economy

Written By Insider Media Group

The 2024 U.S. presidential election has ushered in significant political shifts, marking a turning point not just for the United States, but for its neighbors and trade partners around the globe. As the world's largest economy undergoes a political transition, the ripple effects are being felt across international markets and industries. For Canada, the implications are particularly pronounced. With a deeply interconnected relationship shaped by shared borders, extensive trade agreements, and mutual investments, Canada’s economic well-being is intricately tied to the decisions made south of the border.

As the dust settles on the election results, Canadian policymakers, businesses, and investors are closely monitoring developments in Washington to assess the potential challenges and opportunities ahead. How will new U.S. leadership approach trade agreements such as the USMCA? What shifts might occur in energy policies that directly impact Canada’s oil exports? Could changes in U.S. monetary policy create volatility for the Canadian dollar and inflationary pressures? These are just a few of the pressing questions that highlight the need for Canada to adapt and innovate in response to its neighbor’s evolving policies.

This article delves into the immediate and long-term effects of the U.S. election on Canada’s economic landscape, exploring how Canadian markets, key industries, and policymakers are navigating this critical juncture. From trade diversification strategies to domestic innovation and clean energy investments, we examine how Canada is positioning itself to mitigate risks and seize emerging opportunities in a rapidly shifting global environment.

Immediate Post-Election Reactions

Canadian Markets in the Aftermath

The day after the U.S. election, November 4, 2024, Canada’s primary stock index, the S&P/TSX Composite Index, experienced a modest decline of 0.07%, translating to a drop of 16.61 points, bringing the index to 24,238.55. This movement reflected broader market apprehensions about how U.S. policy changes might influence sectors critical to the Canadian economy, such as energy, financials, and manufacturing. Analysts pointed to heightened sensitivity among investors, driven not only by the election outcome but also by anticipation of forthcoming announcements from the Federal Reserve regarding monetary policy. These anticipated adjustments have the potential to impact interest rates and borrowing costs, which would in turn influence both U.S. and Canadian markets.

The slight decline in the Canadian index underscored the interconnected nature of the two economies and highlighted how political developments in the U.S. have immediate and tangible effects on Canada’s financial markets. Investors remain cautious, closely watching for clarity on the new administration’s priorities, particularly in areas like cross-border trade and environmental policy, which could further shape market sentiment in the weeks to come.

Key Sector Performance

Energy Stocks: Canadian energy companies, such as Enbridge and Suncor, experienced slight declines as investors factored in potential U.S. policy shifts on fossil fuels and pipeline projects. Enbridge shares fell 0.6%, while Suncor declined by 0.8%, both reflecting concerns over potential restrictions on Canadian oil exports (Yahoo Finance).

Financial Stocks: Following the U.S. presidential election, Canadian financial institutions such as the Royal Bank of Canada (RBC) and TD Bank experienced modest stock gains. This uptick was attributed to stable earnings reports and investor confidence in Canada's economic resilience to potential U.S. policy changes. For instance, RBC reported a net income of $4.5 billion for the quarter ended July 31, 2024, up 16% from the prior year, reflecting strong performance in Personal & Commercial Banking, Capital Markets, and Wealth Management (RBC). Similarly, TD Bank Group announced adjusted earnings of $3.6 billion for the third quarter of 2024, indicating stable financial health. (TD Stories) 

Technology Stocks: In November 2024, Canadian technology stocks exhibited mixed performance, influenced by potential new U.S. data privacy regulations that could affect companies with cross-border operations. For instance, Shopify Inc. (SHOP) experienced a slight decline of 0.5% amid concerns over regulatory changes, while Lightspeed Commerce Inc. (LSPD) saw a modest increase of 0.3%, reflecting investor optimism about its adaptability to evolving data privacy standards (Savvy New Canadians). 

Currency Reactions and the Cost of Imports and Exports

The Canadian dollar (CAD) is sensitive to U.S. economic shifts, and the election brought a slight depreciation, with the CAD falling to 1.3880 USD/CAD. This decline reflected investor uncertainty, coupled with a recent Bank of Canada rate cut (Reuters). 

This depreciation has broader implications for Canadian businesses and consumers, as a weaker CAD increases the cost of imported goods, particularly from the U.S., Canada’s largest trading partner. Sectors heavily reliant on imports, such as electronics and manufacturing, are likely to experience rising input costs, which could, in turn, lead to inflationary pressures within Canada. For investors, the movement of the CAD against the U.S. dollar underscores the importance of monitoring cross-border developments that influence exchange rates and broader economic conditions.

Economic Impact of Currency Fluctuations

A weaker CAD raises the cost of U.S.-sourced goods for Canadian businesses and consumers, affecting industries reliant on imports like electronics and manufacturing. Canadian retailers, such as Canadian Tire and Loblaws, are expected to pass on some of these costs to consumers. Data from Statistics Canada indicates that 30% of retail goods in Canada are sourced from the U.S., meaning sustained CAD weakness could lead to price increases and inflationary pressure (Statistics Canada Import Data).

In addition to raising costs for businesses and consumers, the weaker CAD could impact broader economic stability by reducing consumer spending and increasing operational expenses for import-dependent companies. Policymakers and economists are closely monitoring these developments, as prolonged depreciation of the CAD could necessitate adjustments in monetary policy to stabilize the currency and mitigate inflationary risks. This underscores the interconnected nature of Canada’s economy with the U.S. and highlights the importance of maintaining competitive trade policies and diversified sourcing strategies.

Sector-Specific Stock Impacts in Canada

Energy Sector: Pipeline Policies and Environmental Regulations

Canada’s energy sector, which relies on U.S. markets, is especially sensitive to U.S. policy shifts. For instance, Enbridge and Suncor saw modest stock declines in anticipation of potential U.S. restrictions on fossil fuels and pipeline projects, which could affect export flows and revenue (Yahoo Finance). Previous pipeline cancellations, like Keystone XL, underscore Canada’s vulnerability to U.S. environmental regulations (Reuters).

The Keystone XL pipeline, canceled in 2021 under President Biden, serves as a stark reminder of how U.S. environmental policies can disrupt Canadian energy ambitions. The project's cancellation not only resulted in significant financial losses for Canadian companies but also limited Canada's ability to increase its oil export capacity, highlighting the risks of overreliance on U.S. markets and infrastructure. This history amplifies concerns about how current and future U.S. environmental policies might influence Canada's energy sector, from the approval of new pipelines to the imposition of carbon-related trade measures.

In addition to pipeline concerns, the Canadian energy sector faces broader challenges tied to global shifts toward renewable energy and decarbonization. U.S. policies aimed at accelerating the transition to cleaner energy could reduce demand for Canadian oil and natural gas, creating further headwinds for companies like Enbridge and Suncor. As a result, Canadian energy firms are not only closely monitoring U.S. policy developments but also exploring strategies to diversify their export markets and invest in renewable energy projects to mitigate long-term risks.

Industrial and Manufacturing Stocks

The Canadian industrial sector, particularly companies embedded in the North American supply chain, saw mixed responses. Automotive parts producer Magna International’s shares dipped as investors anticipated possible tariff increases or “Buy American” policies that could affect Canadian exports to the U.S. (Bloomberg).

The potential for increased tariffs on automotive parts further exacerbates these concerns. During the Trump administration, Canadian manufacturers faced similar challenges when unexpected tariffs on steel and aluminum disrupted supply chains and increased production costs. These measures highlighted the vulnerability of Canadian industrial companies to U.S. policy shifts and underscored the importance of maintaining stable trade agreements like the United States-Mexico-Canada Agreement (USMCA) to ensure continued access to the U.S. market.

Beyond tariffs, the introduction of stricter "Buy American" provisions could pose additional challenges. Such policies typically require U.S. government-funded infrastructure projects to source materials and components domestically, potentially excluding Canadian manufacturers from lucrative contracts. For a company like Magna, which heavily relies on cross-border collaboration and the seamless movement of goods between Canada and the U.S., these policies could disrupt operations, reduce revenues, and force adjustments in supply chain strategies.

The broader industrial sector is similarly affected, with manufacturers of machinery, chemicals, and other goods facing uncertainty about how potential changes to U.S. trade and procurement policies might impact their ability to compete. While some companies have begun diversifying export markets to mitigate these risks, the U.S. remains the dominant destination for Canadian industrial goods, making it critical for policymakers to advocate for fair trade practices and predictable regulatory environments.

Consumer and Retail Market Impacts

The depreciating CAD directly impacts Canadian retail companies that source from the U.S. Canadian Tire and Loblaws are expected to adjust prices upward due to increased import costs. With nearly a third of Canadian consumer goods sourced from the U.S., sustained CAD weakness could lead to notable price increases for Canadian consumers (Statistics Canada).

For retailers like Canadian Tire and Loblaws, the challenges extend beyond passing costs onto consumers. They also face increased operational complexities, such as renegotiating supply contracts, adjusting logistics strategies, and finding ways to optimize costs. Some retailers may explore alternative sourcing options, such as purchasing goods from domestic suppliers or other international markets where currency fluctuations have less of an impact. However, shifting supply chains is often a long-term process and may not provide immediate relief.

In the longer term, the sustained weakness of the CAD could lead to shifts in consumer behavior, with shoppers becoming more price-sensitive and potentially seeking out discount retailers or delaying discretionary purchases. For businesses, this could mean reevaluating product offerings, promotional strategies, and customer engagement efforts to maintain market share in a more cost-conscious environment.

Long-Term Economic Adaptations to U.S. Policy Changes

Diversifying Trade Partnerships

As U.S. policies continue to evolve, Canada may strategically diversify its trade relationships to reduce reliance on U.S. markets. Strengthening partnerships with Asia-Pacific nations under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) offers Canada a valuable opportunity to bolster exports, especially for industries like agriculture and technology (Canada-Asia Pacific Foundation).

Reinforcing Economic Resilience through Innovation

Canada can also build resilience by fostering domestic innovation and investment. Initiatives like the Innovation Superclusters Program could attract investment in high-tech sectors, such as AI and advanced manufacturing, positioning Canada as a leader in cutting-edge industries while lessening reliance on U.S. economic cycles (ISED ISDE).

Canada-U.S. Trade and Tariff Concerns: An Ongoing Challenge

The Foundation of Economic Interdependence

The U.S. remains Canada’s largest trading partner, absorbing roughly 78% of Canada’s exports, including key sectors like automotive, energy, and agriculture. According to recent figures, trade between the two nations exceeds CAD 700 billion annually (Government of Canada Trade Data). With such high interdependence, even minor changes in U.S. tariffs or trade policies can disrupt Canada’s economy.

Potential Tariff Adjustments

One of the major concerns is whether the new U.S. administration will revisit trade terms under USMCA. During the Trump administration, Canada faced unexpected tariffs on essential exports like steel, underscoring its vulnerability to U.S. policy changes. Analysts now anticipate potential tariffs on automotive or manufacturing sectors, potentially impacting nearly CAD 200 billion in Canadian exports. TD Bank forecasts that a 10% tariff on Canadian goods could reduce Canada’s GDP by up to 1.7% by 2028, disproportionately impacting manufacturing-reliant provinces like Ontario and Quebec (TD Economics).

Policy Adaptations and Strategic Responses

In light of potential U.S. policy changes, Canadian policymakers are exploring strategic adaptations to strengthen the domestic economy and lessen reliance on U.S. markets. Current approaches include:

  1. Strengthening Domestic Supply Chains: Canada is working to increase domestic production capacity in key sectors such as manufacturing, pharmaceuticals, and high-tech. Statistics Canada highlights the economic benefits of localizing supply chains to enhance resilience (Statistics Canada).

  2. Collaborating on Clean Energy Goals: Canada could benefit from joint U.S.-Canada clean energy initiatives, aligning both nations on environmental goals and cross-border investments. Canada’s ambitious climate plan, which targets a 45% reduction in emissions by 2030, aligns with U.S. priorities and could pave the way for collaborative projects (Government of Canada).

Long-Term Outlook: Navigating an Evolving Economic Relationship

As the effects of the U.S. election take shape, Canada faces a period of economic adaptation. While trade with the U.S. remains essential, Canada’s economic future may hinge on reducing dependency through diversified trade, strengthening domestic industries, and fostering innovation. The CPTPP offers a framework for expanding Canada’s exports to the Asia-Pacific, providing alternative avenues for growth and stability (Canada-Asia Pacific Foundation).

By strengthening economic resilience, increasing investment in tech and clean energy, and building robust partnerships beyond North America, Canada can mitigate the risks associated with U.S. political shifts and capitalize on emerging global opportunities.

Conclusion: Adaptation and Agility in a New Economic Landscape

The U.S. election has brought significant changes, requiring Canadian businesses, investors, and policymakers to adopt a forward-looking and adaptive approach to safeguard the nation’s economic stability. As Canada navigates potential shifts in trade agreements, regulations, and environmental policies, it faces both challenges and opportunities that demand strategic planning and innovative solutions.

Diversifying trade remains a key priority, with Canada actively expanding partnerships through agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This reduces reliance on U.S. markets while creating new opportunities for growth. Simultaneously, investments in advanced manufacturing, artificial intelligence, and clean energy—supported by initiatives such as the Innovation Superclusters Program—are strengthening Canada’s domestic resilience and global competitiveness.

Collaborating with the U.S. on shared environmental goals further enhances bilateral ties while fostering sustainable growth. By aligning on clean energy and emissions reduction, Canada is positioning itself as a key partner in addressing global climate challenges.

While the road ahead demands adaptability, Canada’s strong economic foundation and close ties to the U.S. provide a solid base for navigating these shifts. By embracing innovation, prioritizing sustainability, and reducing dependency on a single market, Canada is well-prepared to meet the challenges of 2024 and beyond, emerging stronger and more resilient in a rapidly changing global landscape.

Sources: 

Insider Media Group
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