U.S. Election Uncertainty Poses Risks for Canadian Economy

U.S. Election Raises Concerns for Canadian Economy and Investors

As the U.S. prepares for what is expected to be a highly contested presidential election, business leaders and investors are closely watching how the results might affect not just the United States but also international partners, particularly Canada. The relationship between the two nations is substantial, with roughly $3.6 billion in goods and services crossing the border daily. This deep economic interdependence means that Canada's financial markets—and by extension, those with investments tied to Canadian or U.S. assets—are likely to experience volatility.

“It's not necessarily who's in charge, but what they’re going to do once they're in charge,” notes Karen Routledge, a Calgary-based investment adviser. This sentiment resonates widely because while an election brings speculation on political players, the outcomes for economic policies and global trade relations are of heightened concern.

Trade and Tariffs: A Steep Price

A primary risk for Canada stems from trade policy, especially if former President Donald Trump returns to office. Trump’s previous administration was marked by aggressive tariff policies affecting Canadian industries—most notably on aluminum, steel, and softwood lumber. Known for self-proclaiming himself as the “tariff man,” Trump’s stance on trade protectionism could re-emerge, concerning experts who fear such policies would be significantly detrimental to global trade, particularly with U.S.-Canada exchanges.

In contrast, a Kamala Harris presidency—essentially a continuation of the Biden administration’s market approach—holds fewer surprises for Canada’s trading relationships. According to economists at Desjardins, the impact of higher tariffs under a Trump victory could shrink Canada’s GDP by as much as 1.7% by 2028. That’s in stark comparison to a relatively status quo scenario under Harris, where little economic disruption is anticipated.

U.S. Markets and Global Impact

Business and finance experts are preparing for significant volatility in financial markets, driven by the tightness of the U.S. race. Both major candidates—current U.S. Vice President Kamala Harris and former President Trump—are neck-and-neck in polls, drawing investors' attention to risks that could arise from any possible delays or contestations in determining the winner. Such uncertainty is historically linked to market instability, with Shaun Osborne, chief currency strategist at Scotiabank, pointing out, “The U.S. election could have a major impact on market volatility and the performance of the U.S. dollar and the Canadian dollar.”

The Canadian Dollar: A Cause for Concern

The Canadian dollar (CAD), already underperforming in comparison to historical norms, stands at further risk of depreciation based on the election’s outcome. Canada's economic growth outlook remains stagnant at best, putting additional pressure on the loonie. In some scenarios, economists predict the loonie could dip below 70 cents against the U.S. dollar, if combined with a period of U.S. trade disruptions under Trump’s return.

Stable political circumstances could help alleviate some investor concerns. Barry Schwartz, Chief Investment Officer at Baskin Wealth Management, even expressed hope for political gridlock—the notion that different parties control different branches of government, effectively minimizing the ability to push through potentially disruptive policy changes. “That would be the best,” Schwartz said, “so that no one can get any of their reckless ideas passed through, and then all the politicians can focus on what really matters, which is growing the U.S. economy.”

Long-Term Investment Strategies Remain Key

For investors concerned about potential short-term swings in markets, many financial advisors suggest focusing on maintaining long-term strategies. Historically, the U.S. stock market has proven to be resilient regardless of political party, sustaining growth whether under Trump, Biden, or previous administrations. That said, sudden and significant market volatility remains a probable outcome of the upcoming election.

Investors are watching for a variety of outcomes, especially since much hinges not only on who wins but also whether the results get delayed or contested, a scenario that played out in the contentious 2020 U.S. election. The extent to which uncertainty dominates post-election discourse will strongly influence financial reactions both domestically and abroad.