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CANADA: Canadian Trade Particularly Dependent On US As Tariff Talk Starts

CANADA
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  • The Canadian dollar touched four-year lows against the US dollar overnight as President-elect Trump wasted no time proposing 25% tariffs on all imports from Canada and Mexico plus an additional 10% tariff on China.
  • The snap higher for USDCAD easily more than reversed a small decline seen after Bessent’s pick as Treasury Secretary with hope of a more gradual approach to tariffs.
  • Trump’s logic was that he would hit Canada & Mexico with a 25% tariff on "ALL products," until such time as they stop drugs in particular "fentanyl" and "all Illegal Aliens" from entering the US.
  • As noted above, USDCAD then moved off highs after NYT sources reported Trudeau reaching out to Trump directly to address border security and US-Canada trade. This has scope for some success, especially on immigration, considering far lower levels of US border encounters with Canada than Mexico: US northern land border encounters summed to 200k in the twelve months to October vs 2.0m for southern land border encounters.
  • Adjustments in trade are likely more painful however, considering we’re entering the second Trump presidency with a Canadian goods trade surplus to the US worth about twice it was at the start of the first Trump presidency (3.6% GDP in the twelve months to September vs 1.7% GDP in 2015).
  • The first Trump presidency saw the Canada-US trade surplus fall to its lowest in many years, at ~1.5% GDP in 2H16 when the overall Canadian trade balance was tracking a deficit of circa 1.5% GDP.
  • The historically large recent trade surpluses with the US (compared to the post-GFC period) masks a heavy merchandise trade deficit with the rest of the world to the tune of 3.7% GDP. 
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  • The Canadian dollar touched four-year lows against the US dollar overnight as President-elect Trump wasted no time proposing 25% tariffs on all imports from Canada and Mexico plus an additional 10% tariff on China.
  • The snap higher for USDCAD easily more than reversed a small decline seen after Bessent’s pick as Treasury Secretary with hope of a more gradual approach to tariffs.
  • Trump’s logic was that he would hit Canada & Mexico with a 25% tariff on "ALL products," until such time as they stop drugs in particular "fentanyl" and "all Illegal Aliens" from entering the US.
  • As noted above, USDCAD then moved off highs after NYT sources reported Trudeau reaching out to Trump directly to address border security and US-Canada trade. This has scope for some success, especially on immigration, considering far lower levels of US border encounters with Canada than Mexico: US northern land border encounters summed to 200k in the twelve months to October vs 2.0m for southern land border encounters.
  • Adjustments in trade are likely more painful however, considering we’re entering the second Trump presidency with a Canadian goods trade surplus to the US worth about twice it was at the start of the first Trump presidency (3.6% GDP in the twelve months to September vs 1.7% GDP in 2015).
  • The first Trump presidency saw the Canada-US trade surplus fall to its lowest in many years, at ~1.5% GDP in 2H16 when the overall Canadian trade balance was tracking a deficit of circa 1.5% GDP.
  • The historically large recent trade surpluses with the US (compared to the post-GFC period) masks a heavy merchandise trade deficit with the rest of the world to the tune of 3.7% GDP.