08:32 AM EST, 01/20/2025 (MT Newswires) -- Donald Trump will be inaugurated on Monday as United States president and Canadians are bracing for the economic threats in recent weeks to turn into action through a flurry of executive orders, said TD.

While the bank isn't expecting the worst-case scenario, even a tapered-down set of tariffs could be enough to send temporary shockwaves through the Canadian economy and financial markets.

Three-quarters of Canadian exports head to the U.S. This amounts to C$1.9 billion in daily goods and services exports, meaning that exports to the U.S. account for over 20% of Canada's gross domestic product

Breaking it down by sector, energy is by far the largest contributor in dollar terms, making up more than a quarter of total exports. However, non-energy exports are also highly vulnerable, stated the bank.

Sectors ranging from motor vehicles to forestry have more than 80% of their production destined for the U.S. An estimated 46,000 companies in Canada depend on exporting to the U.S., supporting around two million jobs, or nearly 10% of total employment.

Geographically, the risk is widespread, noted TD. All provinces have exposure to U.S. tariffs, ranging from British Columbia lumber to Quebec metals to Nova Scotia live animal exports.

However, Ontario tops the list in terms of total dollars due to its diversified industries being deeply integrated with its southern neighbor. Motor vehicle and parts manufacturing may get most of the attention, but Ontario is also home to significant production of machinery, base metals, chemicals, and even food/beverage.

While many of these goods are a part of well-established integrated supply chains, it won't assuage concerns, as nearly a million jobs in the province are tied to U.S. trade, pointed out the bank.

Alberta is another key province to flag given its energy concentration. There's speculation that Trump may give Canadian oil a "carve out" from tariffs to prevent rising gasoline prices for American consumers, but still, there are over 300,000 jobs in Alberta tied to exports.

What President Trump ultimately implements is highly uncertain. TD's baseline assumption is that Canada avoids blanket tariffs and instead faces temporary sector-specific threats as leverage for broader negotiations.

However, Canada must also prepare for a worst-case scenario: a blanket 25% tariff with Canadian retaliation. Such an outcome would almost certainly push the Canadian economy into recession, driving the unemployment rate above 8%, added the bank.

However, some of the downside would be mitigated by government action, with discussions well underway on support to affected businesses and consumers.

The Bank of Canada would also create a cushion by accelerating rate cuts, as would an inevitably weaker currency. A larger interest rate gap with the U.S. and the nature of this risk could cause the Canadian dollar (CAD or loonie) to test the historical low of 62 U.S. cents. This would also provide a cushion for Canadian exporters.

This is the playing field for Canada, added TD. The country faced similar risks in 2016 when Trump defied economic logic by igniting a trade war with China and imposing tariffs on specific Canadian exports. While concerns were running high and many forecasters slashed their GDP outlooks, the economic impact was less severe than anticipated, as Trump's goal was to secure a deal.

This time, Canadian officials must be strategic. Short-term support may be necessary to assist industries and workers, but the government cannot miss acting on long-term opportunities.

This crisis creates a burning platform that could enable bold action to build out Canada's competitive advantages, such as reducing regulatory barriers/red tape, and improving tax competitiveness to incent business investment, according to the bank.