The return of United States President Donald Trump to the White House was a shock to officials of Canada’s $2.1 trillion economy.

Ottawa is already exposed to domestic pressures such as stagnant growth and a housing crisis, and now faces the threat of tariffs from the United States, its largest trading partner.

Trump’s promise to steer the United States onto a path of protectionism poses huge challenges for the United States Who will replace Prime Minister Justin Trudeau?Economists say that the outgoing president is not very popular in the country, ahead of national elections that could be held as early as next May.

“It’s a daunting task for whoever takes over for Trudeau because from there it’s a short way to call a snap election,” Tony Stillo, director of Canadian economics at Oxford Economics, told Al Jazeera.

“It’s very difficult. Voters seem ready for change, and Trudeau may boost public support for the Liberal Party with a new face, but that may not be enough.”

while Tariffs were barely mentioned in Trump’s inauguration speech On Monday, any hope of a delay was dashed hours later when he announced he could impose 25 per cent tariffs on Canada and Mexico as soon as February 1.

“What happens to Canadian exports in the event of a tariff war with the United States — that’s a big determinant of economic outcomes as 80 percent of our exports go to the United States and that’s a huge amount of vulnerability,” says Lars Olsberg, professor of economics at Dalhousie University. University of Halifax, Nova Scotia, told Al Jazeera.

Canada’s exports to the United States alone constitute about 20% of its gross domestic product.

Stephen Brown, deputy chief economist for North America at Capital Economics, told Al Jazeera that a 25 percent tariff would have a “significant” impact on the Canadian economy, potentially leading to a recession.

However, Brown said Trump’s tariff threats could serve as a position to gain leverage in negotiations on the U.S.-Mexico-Canada Agreement, which will be subject to review next year. Brown said Trump is a negotiator and “will look for concessions so he can say he got a good deal.”

Trump has been clear that there are three areas of concern regarding Canada: the trade deficit, border security, and Canada’s relatively low defense spending in NATO.

Ottawa could deal with those in one fell swoop if it chose to buy more defense equipment from the United States, enabling it to meet NATO spending targets and bolster border security, Brown said.

Canadian officials also have some leverage because the country supplies about 20 percent of the crude oil consumed south of the border and could theoretically shut off supplies, he added.

Last week, Canadian Foreign Minister Melanie Jolie told reporters that Ottawa is ready to respond to the tariffs.

“And we are ready for a second round and we are ready for a third,” Jolie said.

After Trump’s comments on Monday night, Canadian Finance Minister Dominic LeBlanc said it would be a “mistake” for the United States to go ahead with tariffs.

“That would be a mistake in terms of the cost of living in the United States, in terms of jobs in the United States, and in terms of the security of supply chains,” LeBlanc said.

Oxford Economics said in a note on Tuesday that the North American trade war would deal a “hard blow” to the US economy, leading to slower growth and higher inflation, unemployment and gasoline prices.

However, there is also the reality of a “lame duck” prime minister who will have to deal with the US administration, Stillo said.

Internal pressures

Trump aside, Trudeau and his Liberal Party are under pressure on the home front amid widespread discontent over unaffordable housing and the state of public services such as child care and health care.

Another obstacle to the government’s popularity was the carbon tax, which has become a rallying cry for the opposition Conservative Party, led by Pierre Poilievre.

Introduced in 2019 to incentivize the transition to clean energy, the tax has risen fourfold to C$80 ($55.5) per ton, and is set to reach C$170 ($118) by 2030.

To this end, opposition leader Poilievre pledged to “abolish the tax.”

While eliminating the tax would reduce gasoline station prices by 25 cents per liter, eliminating the carbon pricing system would also stop rebates offered to eligible individuals and families to offset the cost of higher fuel prices.

“Although the net impact on the majority of households is also likely to be a wash, it will vary for individual households depending on their driving habits,” Stillo said.

Then there is immigration.

While immigration has helped Canada’s population grow by about 1% on average each year over the past decade, the number of residents rose by 3.2% between 2023 and 2024, the largest annual rise since the 1950s.

In October, Trudeau, blamed for exacerbating pressures on Canada’s housing, health care and education sectors, announced a new plan. A sharp decline in the number of immigrantsupending many life and work plans in the process.

“One of the tragedies of the Trudeau period is that the consensus on immigration seems very fragile,” Dalhousie University’s Osberg said.

In an October poll by the Environics Survey Research Institute, 58 per cent of Canadians said the country was accepting too many immigrants, an increase of 14 percentage points since 2023. This followed a 17 percentage point increase between 2022 and 2023.

The institute said the rise in negative sentiment toward immigration over the two-year period was the fastest change since the Environics Institute began asking the question in 1977.

The results also showed that the proportion of Canadians who say there is too much immigration has reached its highest levels since 1998.

While anti-immigration political parties have made little progress, a growing number of Canadians are for the first time expressing doubts about who will be accepted into the country and how well they will integrate into Canadian society.

Olsberg said Canada has focused its immigration policy for years on skilled immigrants, except for a brief period after the COVID pandemic when small businesses complained they couldn’t find workers.

“Now you have people working in… [coffee chain] Tim Hortons and [department store] Canadian frames on temporary worker visas. “These are permanent jobs, but now you are stuck with the consequences.”

Some immigration policy changes have already begun to impact the economy, including a decline in the number of temporary resident visas being issued. Along with more flexible mortgage lending rules, housing availability began to decline and rents began to decline.

Experts said that in addition to a migration slowdown that has helped drive growth, the next government will also face long-term structural problems, including low productivity and weak business investment.

“Growing inequality and increasing insecurity are creating a lot of anger and anxiety,” Olsberg said.

“Then comes the coronavirus, which is a massive threat that comes out of nowhere, and then suddenly there is a major war in Europe. The world is changing around us. Pierre Poilievre has been very skilled at focusing all this anger on Trudeau and now there is the agent of chaos Donald Trump. All this anger and anxiety It is the core of the issues.”