Published: January 29th, 2025
A note to investors from Deutsche Bank suggests the Canadian Dollar (CAD) could find itself testing all-time lows on February 1st if the new Trump administration levies a 25 per cent import tariff on Canadian goods.
The pre-inauguration threat made by Trump via X and his own Truth Social network sent the Loonie hurtling Earthward. Canadian officials have responded angrily, with Prime Minister Justin Trudeau saying that Canada would respond ‘dollar for dollar’ with retaliatory tariffs of its own.
Deutsche analysts wrote that the very real prospect of an escalating US-Canada trade war would be a ‘worst-case scenario’ for Canada’s domestic economy and CAD.
‘Should American tariffs go ahead, its natural to assume Ottawa will fight back with tariffs of its own, and in product categories similar to those targeted in the previous 2018 Trump tariff battle. What’s different today is that the Canadian government has also mooted the idea of export taxes on commodities. In a trade battle with the US this could give Canada real leverage, despite its much smaller economy.’
If Trump does go ahead with a 25 per cent tariff, Deutsche thinks the impact on Canadian aggregate demand ‘will be significant, probably damaging enough to push Canada into a recession.’
In that scenario the Bank of Canada wold have to respond strongly, forcing central bank policymakers to cut rates more deeply and for longer than previously expected. The result could be a weakened Loonie.
Trump seems keen to make good on his threat. When markets opened this week he made anew statement singling out Canada and Mexico out as priority targets for new tariffs. He argues that lax border enforcement by both countries has exacerbated illegal immigration to the US.
Canadian households and businesses will have to tolerate a period of uncertainty, which could create headwinds that dampen economic growth.
Loonie bulls may breathe easier after Canada’s expected Spring federal election, when polls suggest the Liberal government of Justin Trudeau will fall to a populist-led conservative party.
Pierre Poilievre, head of Canada's conservative opposition party, has positioned himself in broad alignment with Trump and the MAGA movement south of the border – not least on the issues of cryptocurrencies. Poilievre has branded himself as the pro-crypto candidate for Prime Minister
‘We need to let ordinary people take back control of their money. To do that in a time of expanding government oversight we need to make crypto fully legal and create conditions that will allow it to thrive,’ Poilievre said in a recent post on X. He pledged to help ordinary Canadians ‘take back control over the money you’ve earned through your hard work from politicians and bankers.’
He has also said that a vote for him will help make Canada ‘the blockchain capital of North America’.
Poiliviere’s crypto plans are light on specifics. Just how he would make Canada a "blockchain capital" remains to be seen. For the time being, his objective is likely to tap the surge of interest in crypto amongst grassroots Conservative Party members. After the ‘Freedom Convoy’ occupation of Ottawa, Canada's capital, by long-haul truckers earlier this year, crypto was seen as a way to get around state surveillance and offer financial support to convoy participants by right wing supporters of the protest.
As Canada’s National Post newspaper noted, Poiliviere has a long history of criticising Canada's central bank, blaming it for aggravating inflation and debasing the country's fiat currency (CAD), messages that resonate with libertarians and Bitcoin proponents across the conservative base.
Poiliviere's take on crypto differs sharply from Liberal government policy. The Trudeau government has took aggressive measures to reign-in the crypto industry in the wake of the 2022 Freedom Convoy protest, adding new reporting requirements for crypto transactions worth more than CAD 1,000.
Exactly how Poiliviere's Bitcoin rhetoric will play amongst voters remains to be seen. Many will have only learned about crypto because of news around the protest, so may see it as a partisan issue. That would make Poiliviere's crypto message less impactful, especially given that most Canadians rejected his predecessor’s attempts at Trump-style populism.
Alternatively, as the National Post notes, Canada’s tech sector is growing in leaps and bounds, and an expanding base of tech workers, often assumed to be sympathetic to the libertarian ethos of Silicon Valley, might weigh in Poiliviere's favour. The country’s crypto sector is booming in major centres like Toronto, which is also the hometown of Ethereum founder Vitalik Buterin. Crypto enthusiast Elon Musk is also part-Canadian, adding to perceptions that blockchain is a natural sector for Canadian innovation and leadership.
For Poiliviere, winning the Conservative party leadership on the back of crypto policies could translate into wider political support. For the moment however, a skeptical press and criticism by pundits like Alexander Beck, a senior analyst in Toronto's financial district, are blunting the message.
'I don't see any evidence that Canadians will be lining up to emulate El Salvador any time soon,’ tweeted Beck, referring to the Central American country’s move to make BTC legal tender.
While Poiliviere has been light on specifics for his crypto policies, he did say during his stop at the sandwich shop that any new rules should be ‘light touch’.
‘We shouldn’t compel anyone to use any particular coin. As prime minister, people will have the freedom to choose and markets will be left to respond. If a small business owner wants to focus on Bitcoin as the best way to conduct transactions, they’ll be free to do that. The important thing is that everyone abides by the same laws and pays the same taxes.’
Following the trucker ‘occupation’ of downtown Ottawa in January and February of 2022, the Trudeau government joined Japan and Singapore in requiring customers who send cryptocurrency to another financial institution or exchange to provide the know-your-customer (KYC) details of the recipient.
