How the U.S. election could impact the loonie and your investments

With the U.S. election less than a week away, Karen Routledge's phone keeps ringing with clients wondering what will happen to their investments after Tuesday.

The Calgary investment adviser hears wide-ranging concerns about the impact of possible tariffs, rising U.S. debt levels and interest rates. There's curiosity about swings in the value of the loonie and what happens if it takes several days or weeks before results are known.

The election is "definitely on people's minds," said Routledge. "It's not necessarily who's in charge, but what they're going to do once they're in charge."

Not only do many Canadians invest south of the border, but the state of the U.S. economy, currency and trade policies have implications for Canada and many countries around the globe.

"Our view is you don't want to let politics influence what your long-term portfolio strategy should be. It's like many things, it's just market noise. It's not anything you necessarily want to react to," she said.

Canada and the U.S. are each other's largest trade partners with about $3.6 billion worth of goods and services crossing the border each day in 2023.

The election of Kamala Harris would likely mean a continuation of the status quo, experts say, while a return of Donald Trump could bring back widespread tariffs on exports to the U.S.

Even a Democratic sweep of the presidency, the House of Representatives and the Senate, "wouldn't look much different from a policy perspective," wrote economists at Desjardins in a report last month.

But a Republican sweep could bring a "Trump slump" and hurt both the U.S. and global economies, largely because of the expected drop in trade. Since the 1930s, trade experts say, no president has used tariffs as extensively as Trump did during his time in the White House.

Under President Joe Biden, the two countries have had some trade battles including tariffs on Canadian softwood lumber. However, another Trump presidency is a bigger threat, experts say, because of both his history of favouring significant tariffs (including on Canadian steel and aluminium) and his comments this campaign — calling himself the "tariff man" and saying "tariffs are the greatest thing ever invented."

Combined with higher tariffs on exports to the U.S., the Canadian GDP could drop by as much as 1.7 per cent by the end of 2028, relative to a Harris victory, the Desjardins economists wrote.

"While a recession may be narrowly avoided, it can't be ruled out." 

The Canadian dollar is already trading at relatively low levels. Lacklustre Canadian economic growth could further weaken the loonie, even pushing it below 70 cents, continuing the downward trend of the last few years. 

"The U.S. election could have a major impact on market volatility and the performance of the U.S. dollar and the Canadian dollar," said Shaun Osborne, chief currency strategist at Scotiabank.