What will be the economic consequences of Donald Trump?

Cut the Taxes. Raise the Tariffs. Deport the Illegals. Deregulate Business. Run Up the Deficit.

None of those was a Donald Trump campaign slogan, but any one of them could have been. Take his economic platform and his many off-platform promises, boil them down to sharp declarative statements a la Pierre Poilievre and this is what you get.

Four big ideas the former and future U.S. president never stopped talking about, and one inevitable outcome he never mentioned.

What will be the economic consequences of Mr. Trump?

On Wednesday, stock and bond markets cast their first ballots on the next four years. Stocks went higher, as did long-term interest rates. The S&P 500 Index rose 2.5 per cent, the Nasdaq Composite was up 3 per cent and the small-cap Russell 2000 jumped by 5.8 per cent. At the same time, U.S. bonds sold off, with the benchmark 10-year U.S. Treasury bond yield (yields move inversely to price) up by 0.15 of a percentage point, its biggest one-day rise since the spring.

The markets are a kind of daily election. This is how investors voted on day one of the second Trump era.

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The immediate postelection rise in equities likely reflects investors betting on a future of higher corporate profits powered by lower business taxes, and higher economic growth through additional deficit stimulus. The rise in bond yields appears to be largely driven by the same thing: a bet that if Washington runs bigger deficits and pumps trillions of extra borrowed dollars into an economy at full employment, that spells higher inflation and the inevitable response of higher interest rates – even though the U.S. Federal Reserve is today aiming for lower inflation and lower interest rates.

These stock and bond market moves start with the most conventionally Republican part of the Trump agenda: tax cuts.

Mr. Trump aims to extend his 2017 tax cuts (they expire in 2025), but on the campaign trail he also talked about making Social Security pensions tax-free, removing income tax on tips and overtime pay and lowering business tax rates.

It is unclear what tax changes Mr. Trump will send to Congress, or what it will pass. Republicans will hold a majority in the Senate for at least the next two years, but as of Friday morning it was not yet known whether there will be a GOP majority in the House of Representatives. Nor is it certain that all Republicans will always unquestioningly applaud an infinite expansion of the budget deficit.

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And Mr. Trump’s tax cuts mean larger deficits for a government whose budget shortfall is already unusually large. The non-partisan Congressional Budget Office puts this year’s deficit at US$1.9-trillion, or 7 per cent of gross domestic product. To put that in perspective, Canada’s federal deficit this year is budgeted to be 1.4 per cent of GDP, falling to 0.6 per cent in the 2028-29 fiscal year.

The Committee for Responsible Federal Budget estimates that under Mr. Trump, the midpoint of his promises would deliver deficits of “9.7 per cent of GDP in 2035, with a range of 7.7 to 12.2 per cent of GDP in other scenarios – the highest levels reached outside of a war or recession.”

The think tank also estimates the accompanying increase in the national debt will mean an additional US$1-trillion in interest payments over the next decade.

Could Washington balance the budget, or at least reduce the size of the deficit, through spending cuts? Elon Musk – the world’s wealthiest man, whose money and organization were vital to Mr. Trump’s campaign – says that if the new president makes him the government efficiency czar, he can find US$2-trillion in savings.

Is that possible? Not without breaking a lot of eggs, including ones Mr. Trump wants to protect.

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Total federal spending last year was US$6.8-trillion, and more than a third went to Social Security and Medicare (health care for seniors). Mr. Trump has promised to not cut those. Military spending plus veterans benefits consumed another US$1.2-trillion. Interest on the federal debt was US$882-billion.

The remaining federal budget is US$2.7-trillion. Could Mr. Musk find US$2-trillion in savings out of that? Don’t hold your breath.

Which brings us to the incoming president’s promises on trade.

Mr. Trump has often talked about imposing a 10-per-cent tariff (sometimes he’s said 20 per cent) on all imports. He’s also called for special tariffs on Chinese goods of 60 per cent or more.

A tariff, in plain English, is a tax on imports.

What’s unclear is the extent to which Mr. Trump wants to use tariffs as a threat, to be traded away in return for trade concessions from trading partners, versus the degree to which he see tariffs as an end in themselves.

Robert Lighthizer, U.S. trade representative in the first Trump administration, wrote last year that tariffs should be used primarily as a tool to achieve “balanced trade,” rather than to block trade. His one exception is China. Because that country is a dangerous military rival, Mr. Lighthizer argues that the United States needs to “begin the process of strategically decoupling our two economies,” with high tariffs being the tool to do that job.

If the incoming administration follows the Lighthizer logic, then the chief target of U.S. tariff policy will be China. Though Canada should expect to be targeted in areas such as eggs and dairy, where our supply management system clearly restricts American competition.

But most of our economy and our trade relationship with the U.S. isn’t like that. Set aside our largest export – oil and gas – and we import more from the U.S. than we export. A 10-per-cent tax on all U.S. imports from Canada would be profoundly counterproductive.

In addition to hurting American businesses that export to Canada, the levy would raise the price of Canadian-derived gasoline for American consumers. It would also hamstring the integrated continental oil and gas market, where Canadian exports to the U.S. make possible American oil and gas exports to Europe and Asia.

It’s difficult to see how messing with all that would be an economic or electoral winner for Republicans.

However, Mr. Trump has also talked about tariffs as a new revenue source, to pay for lower income taxes. If Congress were to raise tariffs so it could lower personal taxes, a future administration would find it politically challenging to reverse that.

If Mr. Trump follows through with a universal, 10-per-cent tariff on all imports, the resulting global trade war would harm economic growth and deliver a shot-term boost to inflation in the U.S. and beyond.

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That potential for tariff-induced inflation is another reason why the market is pushing long-term interest rates higher. Higher interest rates push up the value of the U.S. dollar, as happened on Wednesday, and a stronger dollar makes imports cheaper and exports more expensive.

Mr. Trump could, of course, aim to short circuit that by trying to remove the independence of the U.S. Federal Reserve. He appointed current Fed chair Jerome Powell in 2018, but later broke convention by publicly and harshly criticizing him for not pushing interest rates lower.

There’s fear of a future Federal Reserve that simply takes dictation from the Trump White House – a MAGA Fed. It doesn’t seem to be a likely prospect, but to the extent it comes to pass, it would be an economic drag. Three economists at the Peterson Institute for International Economics recently estimated that a policy of revoking Fed independence would lower U.S. GDP by US$304-billion by 2028.

They concluded that if the White House somehow forced the Fed to allow higher-than-potential economic growth, it would lead to additional economic activity, at least in the short term. But in the long run, it would spark higher inflation and cause investors to be more cautious about holding U.S. dollars. The result would be higher borrowing costs and less economic activity.

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There remain two big but vague Trump promises, both with potentially huge implications for Canada: deregulation, especially on greenhouse-gas emissions, and immigration.

The terms “climate change” and “carbon emissions” appear nowhere in the Republican platform. It instead says that America will “DRILL, BABY, DRILL.” And “Unleash American Energy” is the first commitment in the first chapter of platform promises.

“Under President Trump,” it says, “the U.S. became the Number One Producer of Oil and Natural Gas in the World – and we will soon be again by lifting restrictions on American Energy Production and terminating the Socialist Green New Deal.”

The U.S. is still the world’s number 1 producer of oil, due to a boom in production that started before the Trump administration. And though the Biden administration never passed a “Socialist Green New Deal,” it did use the Inflation Reduction Act to bring in major subsidies for clean energy, electric vehicles and decarbonization. That’s what the Trump administration intends to scale back.

It’s unclear precisely what will be scaled back, or to what extent. Some of that may depend on what the Trump administration can get through Congress. There’s also the question of the influence of Mr. Musk, who runs Tesla Inc., and whom Mr. Trump repeatedly praised in his victory speech.

But one thing that can be said with confidence is that the direction for U.S. business and environmental regulations is pointing lower, not higher. That applies particularly to oil and gas.

It makes this an especially inopportune moment for the Trudeau government to be planning an oil and gas sector emissions cap. This industry, Canada’s biggest exporter, is one where the level of investment in Canada and the prices obtained by Canadian producers are closely tied to the U.S. market, and to costs, prices and regulations in the U.S.

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Then there’s Mr. Trump’s immigration policy. For Canada, this could be the most challenging wild card.

Immigration is the issue that powered Mr. Trump to victory, and it has been central to his message since he entered politics. The Republican platform, like every Trump speech, promises two things: “secure the border” and “begin the largest deportation program in American history.”

These are two distinct and separate policies – and the Biden administration has already gone a long way to implementing the first.

In 2022 and 2023, more than five million people came to America, most by walking across the Mexican border and making an asylum claim, after which they were released into the country pending a refugee hearing years in the future. The numbers spiked after President Joe Biden rolled back Mr. Trump’s harsh rules, but earlier this year, Mr. Biden was forced to reverse his reversal. The impact was large and swift. Last December, 192,000 people were apprehended and released by the Border Patrol at the southern border; by July, the number had fallen to just 12,000.

Mr. Trump can make Mr. Biden’s emergency moves permanent by passing them into law, he can put on a show by building some very visible stretches of border wall, which he will hope Democrats will oppose – and then he can honestly claim that the border is now much more secure than under the first three years of Mr. Biden, as promised.

That leaves the pledge of mass deportations.

The Pew Research Center estimates that the U.S. had 11 million unauthorized residents in 2022. There are also several million people who crossed the border in an irregular manner but who are legally in the country, pending a decision on their refugee claims.

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If the Trump administration really means to deport many or most of these people, it won’t be easy or cheap. Tracking them down, arresting them, putting them on planes, persuading their countries of origin to take them and holding them for months or years is a massively expensive and difficult proposition. In addition to the human cost, it would also cause economic dislocation by removing workers from a U.S. economy at close to full employment.

The administration could, however, choose to focus solely on the much smaller number of illegal residents with criminal records, removing them with great fanfare. A secure border, plus a promise of swift deportation for immigrants who commit crimes, would cause little economic disruption and would be politically popular.

It would also allow the U.S. to continue, and perhaps improve and expand, legal immigration. In his first term, Mr. Trump spoke about building an immigration system modelled after what Canada used to have, with scoring that gives priority to the admission of the highly-educated and highly-skilled. In an interview earlier this year, Mr. Trump even said he’d like to give permanent residency to every foreign student studying at an American university. (The U.S. has one million foreign students – relative to population, that’s eight times fewer than this country.)

The challenge for Canada is that if the Trump administration decides on an aggressive policy of alien removal, or if non-citizens in the U.S. fear that such a policy is coming, many of them may choose to simply walk across the border into Canada. It could be a repeat of Roxham Road, on a potentially far larger scale.

Since 2023, Canada has an expanded Safe Third Country Agreement with the U.S., under which a foreigner in the U.S. who comes to Canada to make an asylum claim is supposed to be quickly returned to the U.S. But if hundreds of thousands of people that the Trump administration wants to deport decide to self-deport themselves to Canada, will the Trump administration follow the letter of the agreement and take them back?

The MAGA movement gets a lot of mileage out of “owning the Libs,” and Mr. Trump could make great sport out this situation. He could say that, while the Biden administration was marked by scenes of migrants flooding across the southern border on the nightly news, the Trump administration is delivering the opposite, namely scenes of illegal immigrants flooding out of the U.S. and across the northern border. Could a border crisis for Canada be played as a deportation triumph for Mr. Trump?

It might be a variation on Republican border-state governors busing migrants to Democratic strongholds such as New York – a move that not only owned the libs but upended U.S. politics, spurring some blue state voters to become more conservative and helping elect Mr. Trump.

Canada’s refugee-claims system is already massively overloaded and backlogged, as is the system for removing failed claimants. Anyone making a refugee claim can expect to live in Canada for many years pending a decision, and possibly many more years, even indefinitely, after that.

To avoid an influx of people from the U.S., Canada is counting on a couple of conditions that may not hold for much longer. First, that if someone comes from the U.S. to make a refugee claim, we can send them back. And second, that there aren’t very many people in the U.S. who would want to bypass the refugee process, sneak into Canada and become an illegal immigrant – even though it’s relatively easy to walk into Canada at thousands of quiet spots from coast to coast.

What does Mr. Trump have in store for us? We are about to find out.