The already significant economic divide between the US and Canada is set to widen.

Economic Divide Between the US and Canada Poised to Widen : Economists warn that the election of Donald Trump might further widen the historic gap between Canada’s economy and that of the United States, as well as the majority of global economies. Trevor Tombe, a professor of economics at the University of Calgary, claims that in 2023, the real gross domestic output per capita in the United States was 43% greater than that in Canada. 

“This stunning divergence is unprecedented in modern history,” he says, predicting that the margin will increase to over 50% this year. Although it’s yet unclear how the new president’s policies will affect things, it’s safe to assume that they will increase the United States GDP and inflation shortly.

However, Canada will be negatively impacted by several of these initiatives. 

Though Trump’s threatened tariffs on imports from China, Mexico, and other countries will have “negative spillover effects on Canada,” Royal Bank of Canada economists do not anticipate that America’s northern neighbor will be the direct target of trade disruption. 

When you combine this with the surge of mortgage renewals at higher interest rates that will put pressure on household budgets over the next two years, Desjardins Group economists have updated their predictions for the Canadian economy. “Canada’s weaker economy will put pressure on our central bank to lower its interest rates, while a stronger U.S. economy and higher inflation mean the Fed will need to maintain rates higher than they otherwise would have.

These figures represent the real GDP per capita levels in both nations that have been adjusted for purchasing power parity (PPP). This explains the disparity in prices between the two nations. This is significant because a dollar in Canada may purchase fewer products and services than a dollar in the US. They also adjust for variations in pricing over time. Thus, a $22,100 annual difference (almost $28,000 in 2024 dollars) is enormous.

In other words, in 2023, the United States’ real GDP per capita was 43% larger than Canada’s. Furthermore, I predict that this disparity will increase to about 50% by 2024. Give it some time to sink in. The United States is expected to increase its production by over 50% per person. Although the precise effects of the incoming president’s policies are still unknown, they will likely increase the United States GDP and inflation shortly.

On the other side, some of these initiatives will hurt Canada. Although economists at the Royal Bank of Canada do not anticipate that trade disruption will directly affect America’s northern neighbor, they do anticipate that Trump’s threatened taxes on imports from China, Mexico, and other countries will have “negative spillover effects on Canada. 

“The Desjardins Group economists have reduced their forecast for the Canadian economy to be “meaningfully lower starting in 2026” due to the wave of mortgage renewals at higher interest rates that will put pressure on household budgets over the next two years.

As earnings increased and mortgage rates decreased, housing affordability in Canada improved for the third consecutive quarter, according to the National Bank of Canada.

Nine of Canada’s ten largest markets had increases in affordability, while only Quebec saw a decrease. The cities that made the most progress were Vancouver, Toronto, Victoria, Hamilton, Ottawa-Gatineau, Calgary, Montreal, Winnipeg, and Edmonton. National reports that since their high at the end of 2023, financing prices have dropped 63 basis points to their lowest level since the second quarter of 2022. Even still, mortgage payments as a proportion of income are still far higher than they have ever been.