07:27 AM EST, 11/27/2024 (MT Newswires) -- President-elect Donald Trump at the start of the week shocked the political establishment by threatening to impose a 25% tariff on imported goods from Canada and Mexico, the United States' two trading partners under the USMCA free trade agreement, said National Bank of Canada.

The bank noted that Canadian annual goods exports to the US currently total about C$600 billion, or 20% of Canada's gross domestic prodcut, a significant increase from C$400 billion in 2016.

It's also for Canadians to recognize that Trump's tariff threats are part of a broader economic security agenda, stated National Bank. This agenda encompasses stricter border controls, energy security, protectionist trade measures, and reindustrialization driven by tariffs and subsidies.

Adapting to this reality will require careful navigation of Canada's economic priorities and policies.

The upside is that the sooner Canada recognizes its role within what many analysts describe as a "Fortress North America" economy --amid a world increasingly divided into spheres of influence -- the sooner it can implement the economic reforms necessary to secure long-term benefits, pointed out the bank.

These reforms include better aligning some of Canada's economic policies with those of the US and increasing defense spending, with a particular focus on border security. This is a relatively small price to pay to protect and preserve Canada's critical access to the US economy, according to National Bank.

One of Trump's critical strategies to reindustrialize without triggering inflationary pressures is ensuring producers have access to reliable and affordable energy. Since 2019, for the first time in over 70 years, the US has become a net exporter of natural gas, crude oil, and oil products. This achievement reduces the US economy's vulnerability to disruptions caused by tensions in the Middle East.

It is crucial for the president-elect to build on this strategic advantage, added the bank. This is where Canada plays a vital role as the most trusted energy supplier to the US. The importance of this partnership grows when considering the electricity constraints hindering the deployment of the new economy.

For example, it's estimated that around 40% of planned data centers in the US are unlikely to be built due to electricity constraints, a challenge expected to intensify by 2027-2028. The US private sector sees Canada's potential as a reliable and valuable electricity supplier.

Canada can step up, but this potential is jeopardized by the government's current plan to decarbonize the electricity grid -- a grid that is already 50% cleaner than the OECD average and twice as clean as the US grid in terms of carbon dioxide emissions.

Canada must urgently rethink this policy and strategically leverage its energy sector to strengthen the country's role within the North American supply chain, according to National Bank.

Notwithstanding Trump's rhetoric, the bank believes Washington is firmly committed to building an economic "Fortress America" -- a vision centered on reindustrialization and reducing reliance on stretched supply chains vulnerable to geopolitical events.

Canada should strategically position itself within this framework to maximize its economic and social benefits, it noted. This alignment doesn't mean abandoning its values but reflects a pragmatic need to ensure that Canadian businesses maintain predictable, unrestricted access to the world's richest economy.

By aligning with this vision, Canada can leverage reliable and abundant energy/commodity resources to attract the investments needed to lay the groundwork for a stronger society, claimed National Bank. Such a strategy is essential to addressing Canada's productivity challenges and reigniting per capita GDP growth -- a crucial driver for achieving better wealth distribution and overall prosperity.