Key Takeaways
- Extending tariffs to CUSMA-compliant goods could dampen business sentiment, but their implementation remains uncertain, analysts say.
- US President Trump’s fresh 50% tariffs target auto, lumber, alcohol, and dairy, among other businesses.
- Analysts say the Bank of Canada will be watching developments closely but won’t make any moves at this point.
Canada’s economic recovery faces renewed uncertainty after US President Donald Trump’s threat to impose fresh 50% tariffs on select Canadian goods, but economists aren’t worried.
Analysts mostly see Trump’s announcement as a well-worn negotiating tactic. And while such levies would take a toll on some sectors of the economy, they say the overall impact would be limited. Still, this leaves a continued shadow over the economic outlook.
“We would expect the impact on the Canadian economy to be relatively muted from the latest wave of tariffs,” says Andrew Hencic, director and senior economist at TD Economics, in a note to investors. “However, the actions are a reminder that the uncertainty brought by the shifting trade relationship between the US and Canada could weigh on growth further this year.”
CUSMA Shield Weakened
These newly threatened tariffs have raised particular concern because they mark a departure from how tariffs have been applied. The new suite targets products and industries that either escaped previous tariffs or were protected under the existing trade treaty. Unlike earlier tariffs, which relied on the International Emergency Economic Powers Act, the new proposed ones invoke the rarely used Section 338 of the Tariff Act of 1930.
“My initial assessment is that this is a serious escalation, but the more troubling aspect is the precedent,” says Ben Jang, portfolio manager at Nicola Wealth. “Until now, most goods qualifying under the Canada-United States-Mexico Agreement had remained protected from the broader tariff dispute. Applying these tariffs even to CUSMA-compliant goods weakens that shelter and creates considerably more uncertainty for companies making long-term investment, hiring and production decisions in Canada.”
An Untimely but Small Hit to Growth
“If [these tariffs] happen, we view it as a net negative to growth and business investment right as growth was starting to build momentum beyond the initial tariff uncertainty,” says Shelly Kaushik, senior economist at BMO Economics. “Even if the measures aren’t enacted, the fact that Canada-United States-Mexico-Agreement-compliant goods are included suggests there’s less of a cover for Canada going forward, which itself ratchets up the uncertainty factor.”
If implemented, the latest tariffs “would likely shave between 0.3 and 0.6 percentage points off GDP growth over the next year, absent any major changes to business behavior or government response,” TD’s Hencic wrote. Still, he said his forecast already embeds “a period of uncertainty hanging over the Canadian economy and financial markets in the third quarter.”
UBS economists say the new tariffs cover goods that are not a large part of Canada-US trade. “In this instance the tariffs are relatively small and cover goods that are not a large part of Canada-US trade, unlike the sectoral tariffs on autos, lumber, and metals where we saw a marked shift lower in US demand for Canadian exports in the spring of 2025,” they wrote. Overall, “we would expect that the impact on the Canadian economy to be relatively muted from the latest wave of tariffs.”
Trump’s Announcement Seen as a Tactic
Some are skeptical about whether the tariffs will be implemented. “We expect that these tariffs likely form part of the ongoing renegotiation of the USMCA,” the UBS analysts say.
Following the announcement, Desjardins head of macroeconomic policy Royce Mendes wrote in a note that the move is “Trump’s signature style of leveraging the American market to force partners into making concessions.”
Avery Shenfeld, senior economist at CIBC Economics, says it’s difficult to forecast Trump’s moves: “It’s a futile exercise to put odds on what Trump might do, as he’s known for being unpredictable.” He also points to the 30-day window for negotiations or legal action to prevent the tariffs from taking effect. “If there is a silver lining behind these new dark clouds, it’s that it might speed up the timetable for Canada and the US to get serious talks underway.”
Implications for the Bank of Canada
A negative hit to growth from higher import duties could eventually tilt the Bank of Canada’s stance toward monetary easing, says BMO’s Kaushik. “We’re not yet calling for a cut anytime soon, but Bank of Canada officials will be watching very closely to see how this plays out,” she says.
TD’s Hencic says he is not currently forecasting a rate cut. However, “we see bond yields, stock prices and the Canadian dollar all falling further in the near term as elevated trade tensions persist over the next few months,” he adds.
UBS analysts highlight that before growth picks up next year, “risks like the actions of this week will likely stem any near-term policy action from the Bank of Canada, which we expect will remain on hold this year amid ongoing uncertainty.”
The Bank of Canada is scheduled to make its next interest rate announcement on Sept. 2. Economists broadly expect policymakers to leave the benchmark rate unchanged at 2.25%, where it has stood since December 2025.
