The Canada-U.S. Economic Relationship: What You Need to Know Ahead of the November 5 Presidential Election

October 30, 2024

Whether you鈥檙e an American politics devotee looking for a refresher or you鈥檙e in the very specific situation of not knowing a lot but wanting to keep up with your friends, family or coworkers as they discuss the implications of the upcoming U.S. presidential election on Canada鈥檚 economy鈥� well then, this blog is for you!

We鈥檝e pulled together the various content we鈥檝e published in the past year on Canada-U.S. economic relations to give you a quick primer ahead of November 5.

CUSMA

Canada, the United States and Mexico share one of the largest trading relationships in the world, jointly accounting for almost a third of global gross domestic product (GDP). This critical economic partnership among the three North American economies is underpinned and enabled by the Canada-United States-Mexico Agreement (CUSMA), a free trade agreement that took effect in March 2020, replacing the North American Free Trade Agreement (NAFTA).

On July 1, 2026, Canada, the United States and Mexico will decide whether to extend CUSMA for a new 16-year term. If they choose not to, there will be a review every year until the Agreement terminates in 2036. Worryingly, there is growing bipartisan consensus in the United States on 鈥淏uy American鈥� protectionist policies that is at odds with CUSMA鈥檚 goal of North American economic cooperation. Regardless of whether a Democrat or a Republican president occupies the White House when the CUSMA review happens, there is a risk that the United States will seek changes to CUSMA that are detrimental to the interests of Canada and Canadian businesses.

Canada-U.S. Trade

Trade between the United States and Canada goes far beyond the buying and selling of physical goods 鈥� our economies are intertwined in a complex web of supply chains across many sectors. Which is why a 10% across-the-board tariff on United States imports, like what , would significantly impact trade flows, productivity, prices and real income levels in both Canada and the United States.

The potential consequences:

Canadian labour productivity would drop by nearly 1%.
Almost $1,100 per person would be lost in real annual income for individuals in Canada and the United States.
For Alberta, Manitoba, Ontario and New Brunswick in particular, trade with the U.S. accounts for a significant portion (41% or more) of GDP. On the other side of the border, Canada is the main exporter to over 20 states. This flow of trade would be severely impacted by tariffs and the GDPs of many provinces and states would take a hit.

In an era of increasing global supply chain disruptions, Canada’s role as a stable and dependable trade partner is more critical than ever. Trade with Canada not only bolsters American productivity but also ensures that U.S. businesses have access to high-quality resources vital for their operations. By maintaining and strengthening trade ties, both Canada and the U.S. can secure long-term economic stability, enhance productivity, and remain globally competitive.

To safeguard this essential trade relationship, Canada and the United States should pursue trade policies that:

Promote growth for firms on both sides of the border
Prevent retaliatory measures that could harm both economies
Prioritize long-term agreements for economic resilience
Steer clear of short-term, reactionary policies
Continue to support the principles of free trade
Promote free trade

The Digital Services Tax

The Digital Services Tax is a retroactive tax on revenue earned by large foreign and domestic businesses on online services, including marketplaces, advertising and social media. Canada鈥檚 implementation of this tax is souring diplomatic and economic relations with the United States, as well as affecting our relationships with other countries who have signed onto the multinational agreement that Canada is now undercutting.

The United States, our biggest trading partner, is strongly opposed to unilateral digital taxes like the DST. A says that the DST 鈥渁ppears to breach Canada鈥檚 commitments under [CUSMA].鈥� The announcement goes on to say that 鈥淐anada appears to have targeted its DST on U.S. companies providing Canadian digital services and to be discriminating against U.S. companies and in favor of Candain companies providing those services.鈥�

When France imposed a digital services tax, the United States implemented 25% tariffs on products unrelated to digital services, ranging from champagne and cheese to handbags and perfume. Similar retaliatory tariffs in Canada could result in huge price increases for Canadian goods that are exported to the United States and empty shelves in Canada as businesses with cross-border manufacturing and supply chains struggle to produce products amid the tariffs.

To put it into perspective, our trade with the United States was valued at $960.9 billion in 2022, with $2 billion worth of trade crossing our land border every day, whereas the most generous estimate for how much the DST will earn is less than $1.5 billion per year over the next five years. At such a sensitive time in our trade relationship, Canada should be looking to minimize trade irritants with the United States, not increase them.

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The Canada-U.S. Economic Relationship: What You Need to Know Ahead of the November 5 Presidential Election