In a world filled with iconic duos like gravy and cheese curds, Tegan and Sara, and denim on denim, there’s one partnership that stands out above all – the closely intertwined economies of Canada and the US. This relationship, much like a bromance, faces a rocky road ahead with the looming threat of 25% tariffs from the new American administration. However, this threat is contingent upon Canada making significant changes to its immigration policies and cracking down on transnational organized crime. Interestingly, the Canadian economy is so entwined with organized crime that avoiding tariffs could have a similar detrimental effect on the GDP.
Canada and the US share a crucial strategic partnership, with a daily exchange of approximately $3.5 billion in goods and services. From energy to lumber to defense manufacturing, the interconnectedness between the two countries is undeniable. The absence of a fortified border and the strong cultural bonds make this relationship mutually beneficial.
The recent pressure on Canada to tighten its immigration controls stems from the fallout caused by its lenient approach to immigration. While this issue was first raised during the previous administration, the current government has escalated the situation by threatening tariffs. The severity of the initial 25% tariff threat remains uncertain. However, Canada’s response has brought the issue to the forefront, potentially leading to economic repercussions for both nations. Time is of the essence as the deadline approaches, with both economies facing significant consequences if a resolution is not reached.
If tariffs were to come into effect, the impact on the Canadian economy would be substantial. A study conducted by the Bank of Canada in 2019 projected a 6% reduction in GDP in the event of a 25% broad tariff with the US. This decline would mark one of the most severe recessions in Canadian history, second only to the 2020 recession. Unlike the temporary setback experienced in 2020, this recession would have lasting repercussions with a prolonged recovery period.
Interestingly, cracking down on money laundering, another pressing issue, could have a similar impact on the economy as tariffs. Money laundering, a significant industry in Canada, involves disguising the origin of funds obtained through illicit means. The process consists of three phases – placement, layering, and integration. Each phase generates economic activity and tax revenues, contributing to the overall economy.
The extensive nature of money laundering in Canada is alarming, with estimates suggesting a significant portion of the economy – around 6% – being tied to illicit funds. If measures to combat money laundering result in a contraction of economic activity, it could mirror the impact of tariffs on the GDP. The interconnectedness between organized crime, tariffs, and economic stability highlights the complex challenges facing policymakers.
As Canada navigates these hurdles, it becomes apparent that tough decisions lie ahead. The looming threats of tariffs and the implications of cracking down on money laundering present a challenging landscape for economic growth. Policymakers must carefully weigh their options to avoid jeopardizing the stability of the economy. The road ahead may be fraught with uncertainty, but proactive measures are essential to mitigate the potential risks and safeguard the economic interests of both nations.
