Canada needs to start fixing its “stinker” of an economy regardless of whether Donald Trump imposes tariffs next month so it can prevent similar threats in the future, economists say.

There’s no “quick fix,” the chief economists of some of Canada’s biggest banks said at an event this month, but the country needs to focus on making it easier to do business across provinces and pivot its economy towards manufacturing products that the rest of the world can’t.

“We’ve never seen such a divergence in economic performance between Canada and the U.S.,” Stéfane Marion, chief economist at National Bank of Canada, said. “If you look at the output gap, we’ve never seen the U.S. operating so much above its speed limit and Canada so much below its speed limit. That’s a made-in-Canada strategy. We have a stinker of an economy.”

Canada’s economy is expected to take a big hit if Trump, who officially took over as United States president on Monday, sticks to his word and imposes a 25 per cent tariff on Canadian goods starting Feb. 1.

The highly integrated nature of both the economies would mean the impact is going to be large and “warrants all the attention” that the issue is being given, Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce, said.

“We can look back at what happened when they put a tariff on steel and aluminum,” he said. “The drop in our steel exports during the one year … subtracted about a half a point from Canadian GDP. That’s one product area, so multiply that across the economy. It’s bad.”

Canada’s economy has already been struggling to grow amidst poor productivity levels, which multiplies the challenges, Royal Bank of Canada chief economist Frances Donald said. She compared the situation to a weak “immune system” that needs to be strengthened to prevent such “shocks” in the future.

The American immune system, meanwhile, is strong due to high productivity and its ability to weather a storm is better, she said. The U.S. economy is like guys at “Venice Beach pumping muscle,” while Canada is “a bit more like those kids that eat a lot of junk food and probably watch too much TV,” she said.

But Donald said the tariffs aren’t the last geopolitical shock Canada is going to face.

“We are in a new era,” she said. “There will be more daycare colds coming ahead, so keeping that parallel track is going to be very important for Canada in the next few years.”

One way to do that is to focus on producing things other countries can’t, such as the critical minerals required for the energy transition. For that to happen, though, miners need to be encouraged to produce more of them through a better system instead of being bogged down by permits that can take several years to get approved.

“We’ve always needed a push in Canada to get going on things that are environmentally sensitive,” Beata Caranci, chief economist at Toronto-Dominion Bank, said. “It’s not the promise of critical minerals, because we’ve had a promise in Canada for decades; it’s the delivery of it, and it’s the action of it, and that’s really our only negotiation tool.”

The best form of “retaliation” against the U.S., according to Marion, would be to make Canada the “most interesting” place to invest. One way that can happen is by removing interprovincial trade barriers that amount to tariffs equivalent to 21 per cent, he said. Another way is to “rebuild” Canada’s manufacturing sector by focusing more on natural gas and electricity.

“I agree it will be more pollution,” he said. “But it’s better that this pollution be here (in Canada) with more decent energy than sending it and having manufacturing built on coal in Asia right now.”

The current economic outlook is being affected by the expected tariffs, but 2025 was supposed to be a year that provided Canadians with some relief after the Bank of Canada kept interest rates high for a prolonged period to tackle high inflation rates.

“Canada is one of the most interest-sensitive economies in the world,” Bank of Montreal’s chief economist Douglas Porter said. “We have just had the most aggressive interest rate cuts in the world last year. Were it not for the tariff risk, we would actually be looking at a relatively optimistic outcome for the Canadian economy over the next couple of years.”

Despite the negative outlook, Canada isn’t the only country facing some troubling times, Shenfeld said.

“Canada is not the only country that’s asking … What’s wrong with us?” he said. “All of Europe is saying that, too. So, this productivity miracle has been AI, big developments in the corporate sector, that other countries have not been able to keep pace with. We’re in the same boat.”

Shenfeld hopes Canada can take little steps, one at a time, to exit the situation, but admits it will become more difficult if “we are behind a big tariff wall.”

• Email: nkarim@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters financialpost.com.