Top Analyst Discusses Key Issues Amid Growing Uncertainty  

This webinar is essential for senior financial executives and policymakers as it provides critical insights into the impact of potential U.S. tariffs (and retaliatory measures), and other economic and fiscal considerations leading up to federal and provincial budgets. The discussion touches on economic volatility, lagging productivity growth, demographic challenges, and rising debt-to-GDP levels, and how each impacts fiscal policy at the federal and provincial levels

Professor Trevor Tombe returned for a second straight year to offer his expert analysis on fiscal policy amidst growing uncertainty in light of new tariffs from U.S. Administration. Trevor set the stage by highlighting the current record level of economic uncertainty, and productivity growth that has lagged that of the U.S. for close to a decade.

 Impacts of a Trade War

The potential economic impacts of a trade war with the U.S. were a major focus of the presentation. Tombe highlighted the following key points:

• Canada-U.S. trade is important for both countries, but more so for Canada
  • A 25% U.S. tariff on Canadian goods could impact 2.4 million Canadian jobs and cut real GDP by 1.8% in Canada and 1% in the U.S.
• If Canada decides to retaliate, we could see a drop in real GDP of 2.6% in Canada and 1.6% in the U.S.
• The tariff could reduce Canadian federal government revenues by around $15 billion annually
  • Full retaliation could boost federal revenues by $80 billion annually, but would be a net negative for the Canadian economy

Issues Impacting Government Budgets

Zeroing in on upcoming government budgets, Tombe cited a number of other issues that are likely to pose a challenge, namely:

• Rising federal debt service costs, which before interest rates eased, had exceeded $5 billion per month
• The fact that federal spending has not only been growing, but growing in excess of the government’s own targets since 2015
  • Mounting pressure to meet our NATO commitments, which would mean spending an additional $21 billion a year on defence
  • The nature of Canada’s aging population, which puts additional strain on federal budgets by way of pension costs and provincial budgets by way of healthcare costs

Key Takeaways

Trevor opined that the next government will need to take a more disciplined fiscal approach. He also said that Canadian governments should put renewed focus on improving productivity, which could help mitigate affordability issues, improve government’s balance sheets, and strengthen Canada’s economy against potential shocks. When asked, he said that if the threat of U.S. tariffs comes to pass, Canada should only take symbolic retaliatory action (like a tariff on Florida orange juice), because commensurate Canadian tariffs on U.S. imports would hurt Canada more than the U.S.

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