Canada and the United States are heading toward what some analysts now describe as an all-out trade war. Talks broke down in mid-August, and a 50 per cent U.S. tariff on roughly C$28 billion of Canadian exports – from hockey sticks to farm products – took effect on August 22.
Prime Minister Mark Carney countered with matching “dollar-for-dollar” tariffs, set to begin September 8. In response, President Trump escalated further, threatening to double auto tariffs on cars, trucks, and parts from 25 per cent to 50 per cent starting January 1, 2027.
Stock markets have remained steady so far, rising modestly in the days following the news. Still, economists warn that stacked tariffs create uncertainty for businesses and consumers that extends well beyond the direct dollar value of the goods affected.
The economic impact could be more than a minor dent. The current 50-per-cent tariff covers only about 5 per cent of Canada’s exports to the U.S., but it affects as much as 20 per cent of production and jobs in several targeted manufacturing industries. TD Economics now expects growth to slow to the mid-1-per-cent range by the end of 2027, down from an earlier forecast closer to 2 per cent. Economist Trevor Tombe estimates that up to 90,000 jobs are at risk if the tariffs remain in place.
Ontario, Quebec, and British Columbia – where manufacturing exposure is highest – would bear the brunt of the impact. Alberta, with little direct trade exposure, is more insulated. Even so, most economists still expect Canada to avoid a full recession, though the uncertainty itself is weighing on hiring and investment.
Higher import costs also tend to push up consumer prices. Economists do not expect this latest escalation to alter the Bank of Canada’s near-term rate path. Tariffs typically slow growth, which normally calls for lower rates, but they also add inflationary pressure, which argues against cutting. Since July 2026, the Bank has held its policy rate at 2.25 per cent, and most forecasters expect it to stay on hold through the fall as it watches how the dispute unfolds. A move in either direction looks more likely once the picture becomes clearer.
For borrowers, the dispute affects mortgages in different ways. Variable rates closely track the Bank of Canada’s policy rate, so a continued hold implies little near-term change. Fixed mortgage rates, by contrast, follow bond yields, and those have been creeping higher alongside rising U.S. Treasury yields, which are under pressure from Washington’s large budget deficits.
Independent Opinion
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