The Trump crash

In a Manhattan courtroom Donald Trump is currently on trial in a hush-money case the prosecution says amounts to election fraud and collusion.

The main players are sordid. A porn star. A man already convicted of fraud and sexual abuse facing three more criminal trials. His felon lawyer. The publisher of a sleazy supermarket tab.

What’s the best outcome for the economy, your house, mortgage, retirement and Canada?

That Trump be convicted, go to jail and never again set foot in the Oval Office.

This is the unmistakable conclusion of a new, detailed analysis by Jean-François Perrault, senior v-p and chief economist at Scotiabank, and his colleague Rene Lalonde. Released Tuesday, it details a dystopian aftermath of the coming US election between Joe Biden and his predecessor. Polls show it’s currently a toss-up between the two fossils. The bankers say a victory by either guy would be unfortunate. But a win by Trump would be a disaster. Especially for Canada.

With The Donald in power, and pursuing his agenda of tariffs, an assault on China, and mass deportations of US non-citizens, the outlook for the American economy would be dark. For us, it could trigger a widespread collapse, as forecast by the bank.

Canada would slump into a recession with a drop of 3.6% in national GDP. That compares with the 5% hit we took in 2020 because of the pandemic. But this time contraction would come with a major spike in inflation and explosion in interest rates – also when the federal government’s debt has doubled and service charges ballooned. In other words, the cupboard is bare this time. No CERB coming.

The bank says inflation, now 2.9%, would jump by 1.7% and the Bank of Canada would be forced to raise its policy rate, now 5%, by 1.9%. The prime at the chartered banks, currently 7.2%, would be 9.1%. HELOCs would jump past 10%, as would business and consumer loans. Mortgages would rise beyond 7% and the stress test move towards 10%.

In this scenario – recession, lower economic activity, swollen inflation, surging rates and higher unemployment – our real estate market would do well not to collapse. If a crumble did happen, the implications would be widespread including higher personal taxation to compensate for gutted public revenues over the four years of a Trump presidency. House prices might not drift lower, but instead plunge in such a scenario. The impact on the majority of Canadians with the bulk of their net worth in real estate could be profound.

Is this just Trump-bashing hate and panic coming from the woke towers on Bay Street?

Says the bank’s report:

“A Trump victory and follow-through on the policy side would likely see higher inflation than what could be expected in a Biden victory. Were Trump to implement the more controversial elements of his platform, namely the imposition of tariffs on all U.S. imports and the effective launch of a trade war, and the mass deportation of illegal immigrants, we would also expect substantial economic impacts in the United States and its trading partners. In that eventuality, large reductions in economic activity could be expected in the countries most dependent on U.S. trade (i.e., Canada and Mexico).”

Biden would raise taxes, the report clarifies, while Trump would cut them – especially for corporations. But the major economic impact would come from the launching of a trade tirade by 45. Says the bank: “Trump’s proposed 10% across-the-board increase in tariffs, with a special 60% carve-out for China, would effectively be the launch of a trade war, with damaging impacts on the United States and the rest of the world.” The US economy would shrink by more than 2%, inflation swell fast and the Fed would have to add 2% to rates. In response, the stock market would likely tank, and the 401k retirement funds of millions of equity-holding Americans be crushed.

“Given Canada’s greater reliance on trade,” adds Perrault, “the imposition of tariffs on all exports to the United States would lead to even greater economic harm north of the border.”

Look at this chart of the impact on Canada. There is little chance the current price of homes and condos, or the value of the TSX, your portfolio or the government’s ability to keep shovelling money out the door, would survive a Trump presidency intact.

And it’s not just trade policy. The guy is igniting public passion and support by calling illegal migrants ‘animals’ and promising the expulsion of millions of souls. “The deportation of roughly 10 million illegal immigrant implies a gradual fall of around 3% of the U.S. labour supply,” says Scotia. “U.S. employment and real GDP would gradually fall by 3% permanently…The shock is negative for U.S. stock markets…”

Finally, this analysis does not factor in Putin and Ukraine, Gaza and Israel, “the potential for civil disruption (regardless of who wins)”, China’s current real estate crisis nor a deterioration in American finances in the wake of the election. But you should.

This report can be read here.

If you’re not rooting for the prosecution, you’re not paying attention.

About the picture: “Hi, Garth!  Here’s our 7 year old Cavi, Molly,” write Leslie and Sam. “She’s a serious Alpha girl.  We certainly know who’s boss!”

To be in touch or send a picture of your beast, email to ‘[email protected]’.