Shopping or travelling in the U.S.? Canadian dollar drops after Trump tariff threat

The Canadian dollar dropped after U.S. President-elect Donald Trump vowed across-the-board tariffs on Canadian products if issues with the border are not fixed by the time he is sworn in.

As of around 9 a.m. Tuesday, the Canadian dollar was trading for 70.9 cents U.S., down from a high of 71.79 cents U.S. on Monday.

For comparison, one U.S. dollar equaled 1.4109 Canadian as of Tuesday morning.

It’s bad news for those heading to shop or travel in the United States amid the holiday season, with Canadians’ purchasing power further eroded and trading at multi-year lows against the U.S. dollar.

The loonie was trending lower since around the beginning of October, but has dropped even further since the Nov. 5 election in the United States.

In contrast, in May 2021, the Canadian dollar traded for around 83 cents U.S.

There are numerous factors that go into how the Canadian dollar trades, including the overall health of the economy and interest rates. But experts have said uncertainty around the incoming Trump administration’s economic policies is a big component currently, as it poses a threat to Canadian exports and business investment.

And Trump’s threat, issued on social media Monday, seems to be confirming experts’ worst fears.

Trump said he will sign an executive order imposing a 25 per cent tariff on all products coming in to the United States from Canada and Mexico.

He said the tariff will remain in place until both countries stop drugs, in particular fentanyl, and people from illegally crossing the borders.

Modelling by the Canadian Chamber of Commerce suggests a 10 per cent across-the-board tariff would reduce the size of the Canadian economy between 0.9 and one per cent, resulting in around $30 billion per year in economic costs.

It estimates the U.S. would see around US$125 billion a year in economic costs.

Meanwhile, the weak loonie Canadians are currently facing affects not just those heading to the United States for shopping or travel.

It impacts the price of many products sold in Canada, including gas prices, meaning consumers have to pay more at the pumps when the Canadian dollar drops.

— With files from The Canadian Press