Trump’s 25% tariff would push Canada into recession

Blanket 25% tariffs on Canada threatened by US President-elect Donald Trump earlier this week would push Canada into a recession in 2025, cause a sharp spike in inflation, and force the Bank of Canada to hold rates higher next year.

What you will learn:

• Using our Global Economic Model, we estimate that across-the-board 25% US tariffs along with proportional retaliatory tariffs would reduce Canada’s exports and cause its GDP to fall 2.5% peak-to-trough by early-2026. Inflation would surge to 7.2% by mid-2025, and 150,000 layoffs would lift the unemployment rate to 7.9% by year-end.
• Canada’s energy, auto, and other heavy manufacturing sectors would be hardest hit by the blanket US tariffs because of the high degree of cross-border trade in these industries. These sectors rely heavily on exports to the US, but also source a sizeable share of their inputs from the US, making them highly exposed to tariffs.
• However, we think it’s unlikely that sweeping US tariffs of this magnitude will be implemented as they would also push the US into a shallow recession, fracture US-Canada relations, and severely disrupt North America’s highly integrated economy and cohesive supply network.

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