North America: Key themes to watch in 2025

Here is how we see our key themes for 2025 shaping North America’s operational and investment environment.

Economic angst

President-elect Donald Trump’s key policy initiatives — tax cuts, tariffs and deportations — will dampen GDP growth in 2025, although the larger effect on growth will be in 2026. Trump has proposed personal and corporate tax cuts, paid for with universal tariffs. He has also proposed mass deportations of undocumented immigrants. S&P Global Market Intelligence has assumed partial implementation of these proposals in our baseline growth forecast.

Tax cuts will boost activity, although they will be offset by fallout from tariffs and production disruptions and reduced aggregate demand from deportations of undocumented immigrants. Once tariffs become effective – we assume during the second quarter of 2025 – inflation will start rising. This will be reinforced by wage pressure and rising prices in industries affected by deportations. Rising inflation will prompt the Fed to pause its easing cycle, leading to tighter financial conditions. Retaliatory tariffs imposed by US trading partners will reduce US exports. The combination of tighter financial conditions, weaker exports, and reduced demand stemming from a smaller immigrant population will begin weighing on GDP, although the effects will be small in 2025, expanding in 2026.

US debt levels look likely to increase over the coming years. Chronic US deficits and growing national debt are perennial political issues, and fundamentals are worsening. The debt ratio has climbed to 96%, versus 77% at end-2019. 

Canada’s economy would be damaged by US tariffs despite temporary fiscal relief. Aligning with our US policy assumptions, our December baseline forecast does take account of retaliatory tariffs. External factors will be the largest drag on Canadian growth in 2025, reflecting lower US demand and higher import costs for consumers.

Geopolitical uncertainties, notably in trade relationships with the US, are likely to dampen investment spending and hiring. Canada’s labor market faces excess supply as hiring demand wanes. In turn, we forecast slowing consumer spending as wage growth slows, initially putting downward pressure on inflation temporarily prior to the impact later in 2025 from tariffs. The Bank of Canada is likely to react to growing excess capacity in the economy and labor market with additional monetary easing in the first two quarters of 2025.

Domestic discontent

The number of protests in 2025 is likely to increase, as Trump enacts his domestic policy program. Trump’s plans to begin mass deportations of undocumented immigrants will likely lead to widespread protests in major urban centers, most notably on the West and East Coasts, especially if major cities become safe zones for immigrants attempting to avoid deportation. Heightened security on university campuses will likely dampen student protests on university property, although adjacent locations will face higher protest risks.

In Canada, protest risks will increase in the lead-up to federal elections in 2025. Protests relating to immigration, high costs of living and trade tariffs are likely to increase during the election period, with federal and provincial capitals and large cities like Montreal and Vancouver mostly likely to be impacted. If Trump implements a threatened 25% tariff on Canadian goods, civil unrest is probable near the US embassy in Ottawa and US consulates.

Canada’s opposition Conservatives start 2025 with a commanding 20-point poll lead, with voters dissatisfied with the Liberal government’s handling of inflation, housing affordability and economic stagnation. This positions Conservative Party leader Pierre Poilievre as the clear front-runner to form the next government. A victory by the Conservatives, who have not held power since 2015, would represent a seismic shift in Canadian politics, resulting in major policy adjustments in energy, housing and taxation.

Canadian Prime Minister Justin Trudeau has announced his resignation as leader of the Liberal Party, attributing this to "internal battles" within the party and the goal of renewing its leadership ahead of the next federal election, which must take place by October 2025. Parliament has been prorogued until March 24, until the ruling Liberals can pick their new leader.

Elusive alliances

Trump’s proposed tariffs on imports from Mexico and Canada are likely to prompt the early renegotiation of the United States-Mexico-Canada Agreement (USMCA), originally set for July 2026. Adjustments to the USMCA rules-of-origin may be made to limit imports from mainland China, aligning with Mexico’s goal to reduce dependency on Chinese components.

Given the adverse economic effects, we assess that Trump’s intention is to spur concessions during negotiations enabling compromise whereby the duties are implemented only partially, if at all. Nonetheless, Trump’s conviction that tariffs incentivize companies to relocate manufacturing back to the US suggests that tariffs are not simply a negotiating ploy and will form part of the policy mix.

Trade troubles

While many of Trump’s proposed tariffs are likely to serve as leverage to obtain concessions in trade negotiations, some will almost certainly be enacted. Trump’s intention to impose 25% tariffs on all goods from Mexico and Canada would impose substantial impacts on firms reliant on border trade.

Trump’s previous statements and policies suggest mainland China will be a likely primary focus, with Trump suggesting that Section 301 duties could rise to at least 60%. Additionally, countries experiencing rising trade surpluses with the US, including those with existing US free trade agreements, are probable targets, such as South Korea, and Vietnam. Countries like Thailand, Laos and Cambodia will also face scrutiny if their trade deficits with mainland China increase while their surpluses with the US grow. 

Click here for our global report on 2025 themes