America decides: What’s at stake for Canada?

Roman Dubczak: Hello, everyone. I’m Roman Dubczak, Deputy Chair of CIBC Capital Markets. On today’s webcast, the day after the night before. Many of us here at CIBC were up through the night analyzing what was going on in the US election. And here we find ourselves with the Donald Trump victory. In what has been heralded as one of the great political comebacks in recent memory, Donald Trump has been reelected into the Oval Office.

While much will be written about the US election in the days, weeks and months to come, our team is bringing you their first impressions after a dramatic evening. To help us navigate some of the implications, I have with me, the Honourable Lisa Raitt, Vice-Chair of Global Investment Banking, and CIBC’s Chief Economist, Avery Shenfeld.

So, Lisa, Avery, thank you very much. Like I said, we were all up pretty late last night, looking at, what the results of the election were.

Lisa Raitt: Yeah.

Roman Dubczak: Why don’t we start, Lisa…

Lisa Raitt: – Sure.

Roman Dubczak: …what happened?

Lisa Raitt: What happened was there was underperformance by the Democratic candidate and overperformance by the Republican candidate. Which sounds very logical, right? So the question is, “why did it happen?” “Why did we not think it was going to go this way?”

You know, when they started the coverage early in the day, if you watch CNN or FOX, or whatever you were watching, you would see the person who was speaking on behalf of the Democrats was very hopeful and optimistic. We feel it’s good. The surge is our way. And I believe them. And the people who are surrogates for Trump would say, well, we’re not quite sure we’re looking at the numbers and we’ll let you know what we think.

And boy, by the time you were looking at Virginia numbers coming in, you realize something changed. And whatever it was that the folks in the Harris campaign were feeling, wasn’t a true feeling. And I think what really messed things up was that one poll that came out in Iowa.

Roman Dubczak: The Iowa poll, yeah.

Lisa Raitt: And made everyone think, but oh my, they really do have a chance and their messages are connecting. And then you just see the result of that is Donald Trump crushed her in Iowa.

Roman Dubczak: – Yeah. And that was that.

Lisa Raitt: That was it.

Roman Dubczak: So, Avery, obviously this changes the economic backdrop. You know, how would you summarize, you know, what the impact would be on the Canadian-US economic outlooks?

Avery Shenfeld: So it’s complicated.

Roman Dubczak: – Yeah.

Avery Shenfeld: It’s uncertain. But actually in terms of the GDP growth, maybe not that different because of where we are in the business cycle. So, remember the Bank of Canada’s job right now is, having defeated inflation, it’s to cut interest rates enough to get the Canadian economy moving at a faster clip and start bringing the unemployment rate down.

So, actually the biggest uncertainty is now how many cuts it’s going to take. Oddly enough, when we came in this morning, the market was a little less certain about the degree of of these rate cuts. But I think the reality is, with trade barriers, a big risk to the Canadian economy, and even if those don’t actually transpire in the end, the uncertainty surrounding future tariffs and US trade policy means that Canadian business confidence will be dented.

And so, if anything, we may get 1 or 2 more rate cuts from the Bank of Canada, but I think we will get enough domestic demand growth then to get us through at least this period of uncertainty. And for the US, a lot of the speculation in markets is, there’s going to be huge tax cuts, no offsetting spending cuts, massive budget deficits, lots of stimulus.

I think we have to remember that Congress has a lot to say about these things. And while they didn’t campaign really heavily on big spending cuts, there’s still a boatload of Republicans who just got elected who I think are going to say we need to trade off these tax cuts against spending reductions, who aren’t going to allow the deficit to just blow up and then we have the Federal Reserve, which will also do its job.

It will set interest rates appropriately so that the US growth rate is moderate and contains inflation. So at the end of the day, I still think we see inflation under control. I think the first few rate cuts from the fed are still a given. They can get the overnight rate took three and a half without overdoing it. And really the uncertainties are for 2026. It’s how much fiscal stimulus, what trade policy actually looks like.

We as economists are going to have to make some guesses there. And we’re doing so now. But the reality is this is an uncertain situation, when we get to ‘26.

Roman Dubczak: I will observe that a month or so ago, the task of economists and central bankers seemed to lot easier than it is now, and…

Avery Shenfeld: – that’s why I’m looking a little frazzled.

Roman Dubczak: Yeah, exactly.

Avery Shenfeld: – Exactly.

Roman Dubczak: So, Lisa, the other big topic that came up during the campaign and one that, you know, I think Canadians were very focused on, was the tariff issue, you know, how do you think this plays? And, you know, what do governments do about that?

Lisa Raitt: Well, obviously any stripe of government has got to be prepared for it. And they would have been doing the work. So there’s two ways of being prepared, one, you have the government prepare, which is to make sure that you understand all the process around tariffs going on at the border, and what kinds of claims you’re going to have to file, because it’s a lot of paperwork.

But the other aspect of it is they really have to rally corporate Canada, and they’ve got to rally Canadians to make the contacts with their counterparts in the United States to build these bonds, because I don’t think anyone’s going to be surprised when I say that Mr. Trump and Mr. Trudeau aren’t famous best friends.

There’s going to be a little bit of friction there. And as a result, it really comes on to the rest of Canada to make sure that you’re making those connections. On the tariffs. my view of Mr. Trump is that he’s transactional in nature. The tariff will be applied. It’s going to be very difficult to get an exemption before the tariff is applied. Tariff will be applied, money will be collected.

It goes into the Treasury. By the time you get to a couple of billion dollars, maybe you get to go and negotiate with Mr. Trump at that time. He cuts a deal. He says he won, and it’s a transaction. I think that’s the best case scenario for Canada.

Roman Dubczak: Would you say that ‘we’, as in the Canadian government, have banked some relationship with Trump and his team, having negotiated a hard fought agreement in the past, and they can build on that going forward.

Lisa Raitt: Absolutely. And we should go into the renegotiation of CUSMA, which is the Canada-US-Mexico Free Trade agreement, in a positive way. “Let’s try to make it better.” “Here are the things we can work on.” And that is just part of the agreement.

You have to go in and renegotiate it so you can approach it that way. But Mr. Trump talks openly about having lists of people he doesn’t like, and Canada has to make sure that they’re not one of them, that we are somebody that they can do business with, somebody who we have — We also have a great relationship with JD Vance, who’s now the new Vice President. And I think that is going to do us well in the long-term.

Roman Dubczak: Okay, good. Good. Thanks. You know, Avery, along the lines of we were discussing earlier, what do you think the impacts are on, not so much monetary policy, but, you know, derivatives of interest in exchange rates going forward?

Avery Shenfeld: So we’ve seen bond yields pushing up in the lead up to the vote, betting that Trump would win, betting that we get these bigger budget deficits. I think we have to take this as a potential overreaction by the market a bit. Remember that some of what they are ascribing to the Trump plan was the extension of tax cuts that were due to expire in 2026.

Markets were already likely assuming that those would be extended, at least for the people under 400,000, because actually there was bipartisan support for that. And then, if you look at some of the other things that are written in the in the Trump plan, I think a lot of these will never happen. So we’re not going to have exemptions for overtime earning Social Security income, firefighters, tip earners, you know, whoever he was standing in front of was going to get a tax break.

Congress is unlikely to approve all of that. So it’s not that US budget deficits are coming down any time soon. That was true under either candidate. But I don’t think in the end, the fiscal boost in ‘26 is going to be as big as the market expects, and therefore we may actually get some relief rally in bonds over the next few quarters. If we start to sense that it’s not a one way ticket to massive additional borrowing by the US Treasury, which is, I think, the more likely scenario, but is again, this is something that we will watch over time.

On currencies, you know, this is definitely a weaker Canadian dollar outlook than we saw prior to the election. The question is, “how weak for how long?” And I think a lot goes to the scenario that Lisa was discussing. Do we get tariffs put on? Can we get them removed? Trade barriers will lift the US dollar at the expense of other major currencies. Canadian dollar will not escape that.

So we could lose a couple more cents from what we’ve already lost. But we might make that back if this all ends well, and we don’t know. So, you know, I think it’s, it’s an additionally uncertain environment for the currency, But probably, somewhat weaker average than we would have budgeted for before.

Roman Dubczak: – Okay. If you were talking to one of our corporate clients right now, other than “remain calm”, is there anything else you would kind of lay out there as to, you know, how to go through the coming days and weeks, so to speak?

Avery Shenfeld: So, I think because no economist, whether it’s Avery Shenfeld, or some lesser economist can tell you exactly what’s going to happen. I think the reality is that, to the extent that you’re always trading off the costs of hedges against the potential benefits, the range of plausible outcome for both borrowing costs and exchange rates is now wider than it was before.

And to the extent that you can lock in borrowing costs, for example, or hedge against major moves in the currency, that might affect your business, I think it’s worth a second look at your hedge levels now, and thinking about whether or not you want to protect yourself.

If you’re an importer, for example, from, you know, a much weaker Canadian dollar, that kind of protection might prove golden, if some of these worst case scenarios for trade barriers do arise. So hedging is certainly an opportunity. I think Lisa’s right. Big Canadian companies need to think about their US divisions, their allies in the US, their customers in the US.

So our steel tariffs that Trump put on and then were removed. Our biggest ally were US automakers that used imported steel. So, it’s not too early to start lining up your deck in terms of the kind of support you might need to get around these trade barriers.

Roman Dubczak: Yeah. No, thanks. And, Lisa, perhaps I’ll let you close off. Would your insights be for our clients right now?

Lisa Raitt: I would say focusing on the energy side. What an opportunity. You know, Donald Trump has made no secret of the fact that he embraces every form of energy nuclear, oil and gas, fracking. The whole kit and caboodle is in there. To some extent, renewables will have to wait and see what it is, but be ready for great movement in that area and just be flexible and be ready to come down from Canada and explain what our expertise is. But, watch the EV file.

 Roman Dubczak: Okay. Well, thank you. Lisa, Avery that was a very quick snapshot of what I think is the beginning of a longer journey. But, look, I think as opposed to the past, I think, you know, most people are prepared for a wide range of outcomes. And the best we can do is keep an eye on how things develop and factor that in.

And, you know, I’d like to thank you, our clients, for joining today. We’ll be talking about this, I’m certain, for the foreseeable future. And please reach out to any of your CIBC friends or colleagues, and we’d be happy to help walk through various scenarios with you. Thanks for joining us. I hope to see you again soon.