In the Face of Economic Uncertainty, Flexibility Is Key

The re-election of Donald Trump, and especially his protectionist stance, could upend the economy. The president-elect himself has floated many different ideas about what he intends to do, each of which would affect the US and Canadian economies differently. We’ll go over three possible scenarios, each of which paints a different picture of what will happen with the economy (in terms of real GDP, inflation and unemployment) in a new Trump era. The main difference between the three scenarios is the trade policy implemented by the White House. Of course, many other alternative scenarios could be developed based on different assumptions. Our goal isn’t to provide an exhaustive analysis of all possible outcomes, but to outline a range of economic repercussions based on optimistic and pessimistic scenarios.

The baseline scenario, which was also described in our latest Economic and Financial Outlook External link., is based on what Trump promised during the election campaign: 10% tariffs on all countries and 60% tariffs on China. The pessimistic scenario is based on a proposal that would be especially painful for Canada, which (along with Mexico) would quickly be hit with 25% tariffs. The optimistic scenario assumes that the US won’t raise its tariffs.