The Canadian economy faces mounting challenges as uncertainty over U.S. trade policies continues to disrupt markets and complicate economic forecasting. Recent tariffs imposed by the Trump administration have created significant headwinds for Canadian businesses and policymakers alike.
Multiple Rounds of Tariffs Creating Economic Turbulence
U.S. President Donald Trump’s April 3 “reciprocal” tariffs targeted a slew of countries and roiled markets. These were the latest in multiple rounds of tariffs, three of which — on non-CUSMA compliant goods, on steel and aluminum, and on the auto sector — have hit Canada since early March, spurring $60 billion in retaliatory counter-tariffs.
The rapidly changing nature of U.S. trade policy has made economic planning particularly difficult. As the Bank of Canada noted, its governing council agreed “it was not useful to try to pinpoint the position of U.S. trade policy given the continually shifting situation.”
Assessing Tariff Impacts on the Canadian Economy
Economists are working to understand how these trade disruptions will affect Canadian businesses and consumers. The Bank of Canada has developed a framework to assess the opposing pressures on inflation, as tariffs create both weaker demand and higher costs—a particularly tricky situation for central banks to address with monetary policy.
That framework will see them pay attention to how tariffs might reduce demand for Canadian exports and how that lower demand would weigh on business investments, employment and household spending. They’ll also examine how quickly cost increases are passed on to consumer prices and how inflation expectations evolve. Read more about how this may affect local rates in this article on rate holds for Fraser Valley homeowners.
Dual Scenarios for Economic Planning
Given the unpredictability of the situation, the Bank of Canada’s governing council considered two economic scenarios. Rather than a typical economic forecast, these were created to offer two possible outcomes among many, “given the unusually large range of unknowns clouding the outlook.”
The first scenario was built around the possibility for inflation to be “relatively muted,” if the tariffs are short-lived but uncertainty persists for a time. The second scenario focused on tariffs being larger and permanent, leading to a recession and inflation rising above three per cent next year.
Economic Growth Forecasts Dimming
In a new report from Scotiabank, economists say the outlook for growth is dimming quickly, thanks in large part to a “dramatic escalation of America’s war on trade.” While Canada has avoided the steepest tariffs so far, the spillover from weaker U.S. growth and softer commodity prices is already being felt.
In the U.S., Scotiabank says 100-year-high tariffs are “already causing a material slowdown in economic activity that will extend well into next year.” And while tariffs against Canadian goods haven’t changed much since March, the economic damage elsewhere is weighing heavily. Learn more about the impact on non-bank lending in this related post on non-bank mortgage slowdowns.
Recession Risks Rising
While a full-blown recession isn’t Scotiabank’s base case—unlike others like Oxford Economics—it admits it’s a close call. “There is no doubt that economies will flirt with recession owing to the tariffs and associated uncertainty,” the economists warn.
For Canada, they now forecast GDP growth slowing to just 0.7% in 2026, with the unemployment rate rising to 7.2% as the economy struggles to regain momentum. For insights on how this might affect housing markets, explore how a potential rate cut could impact your mortgage.
Manufacturing Sector Feeling the Pressure
The manufacturing sector has been particularly affected by the trade tensions. Recent reports indicate that companies are already adjusting supply chains in response to tariff pressures. According to a Global News report, GM is cutting a shift at an Ontario plant this fall due to tariff fallout, while Aritzia is shifting some supply from China amid U.S. tariffs.
Businesses Face Difficult Choices
Canadian businesses find themselves in a challenging position as they attempt to navigate the volatile trade environment. Many are reconsidering investment plans, examining supply chain alternatives, or delaying major decisions until the trade situation becomes clearer.
The uncertainty is compounded by the fact that tariffs appear to be imposed and lifted “seemingly at random,” as noted by economic observers tracking the situation. This unpredictability makes it nearly impossible for businesses to engage in effective long-term planning. Business owners in B.C. can review cross-border mortgage considerations if they’re contemplating U.S. expansion.
Looking Ahead: Potential Scenarios
Scotiabank warns their forecast could shift quickly. If trade tensions ease, “it might be possible for the economy to rebound sharply in the second half of this year,” they said. But if the trade war escalates and tariffs climb even higher, “the economic outlook would be significantly worse.”
As Canadian businesses and consumers continue to navigate this period of uncertainty, economists and policymakers are watching closely for any signals that might indicate which direction U.S. trade policy will take in the coming months. For homeowners, HELOCs may offer flexibility in uncertain times, and a potential GST cut could support first-time buyers.
How Browne Mortgages Is Helping Our Community Navigate Tariff Uncertainty
At Browne Mortgages, we’re closely monitoring how tariff uncertainties are affecting our local Fraser Valley housing market. Despite economic headwinds, we’re encouraged to see remarkable resilience in our communities. We understand that many Abbotsford and Chilliwack residents are concerned about how trade tensions might impact their homeownership goals. The good news is that sales are forecast to grow which presents opportunities for both buyers and sellers in our communities.
As your trusted local mortgage experts, we’re ideally positioned to help you navigate these complex economic conditions. With the central bank expected to further cut rates in 2025 to support the economy amid tariff pressures Cmhc-schl, we can help you understand whether variable-rate or fixed-rate options might better suit your specific situation.
Contact us today to discuss how we can help you achieve your homeownership goals in Abbotsford, Chilliwack, and throughout the Fraser Valley. In challenging times, local expertise matters more than ever – and that’s exactly what we deliver at Browne Mortgages.
