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The breakdown in the Canada-U.S. trade negotiations, followed by new U.S. tariffs and Canada’s retaliatory response, has created a strong political and emotional reaction. Trade disputes between close partners touch issues of sovereignty, fairness, and national interest, not just economics. Markets will react and adjust to the noise created by the headlines as they always do. However, it is important to step back and assess the likely paths forward.
Current Assessment
- The expected impact on Canadian GDP is estimated at less than 0.5%.
- The net tariff rate is projected to rise to about 6%.
- Approximately 80% of Canadian exports to the U.S. remain tariff-free.
- Manufacturing-heavy provinces such as Ontario and Quebec could be affected the most.
Three Potential Scenarios
1. Negotiated Resolution (50% probability)
- Tariffs and rhetoric escalate temporarily, but both countries quickly return to negotiations.
- Economic damage remains limited.
- Business confidence recovers and markets stabilize.
- Long-term outlook remains largely unchanged
2. Prolonged Retaliation (35% probability)
- Canada and the U.S. continue imposing retaliatory tariffs.
- Uncertainty persists for weeks or months before a compromise is reached.
- Businesses delay investment and hiring decisions.
- Investors become more cautious about Canadian assets.
3. Long-Term Entrenched Tariffs (15% probability)
- Tariffs remain in place for an extended period.
- Companies rethink investment plans, supply chains, and expansion.
- Hiring, confidence, and productivity weaken.
- Canadian assets and the Canadian dollar could face sustained pressure.
The immediate economic impact of the latest tariffs appears manageable, but how long the uncertainty lasts is important. If the dispute is resolved soon, the overall damage should be limited. However, prolonged uncertainty could reduce confidence, delay business investment, and affect how companies operate—creating greater risks for the Canadian economy and financial markets.
I hope you found this informative.
Have a great weekend,
Tracey & Paige
Source: Marketing email from CI Wealth; from Head of Macroeconomics, Lorne Gavsie. Nothing in this email is intended to provide, or should be relied upon for, accounting, legal or tax advice or recommendations. In addition, nothing in this email constitutes an offer to sell or a solicitation of an offer to purchase any investment or security
Photo by Hudson Thomas on Unsplash
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