Canadian Macroeconomic Outlook - February 2025

The tariff threat

The recent announcement of tariffs on US imports of steel and aluminum from Canada, alongside the paused 25% tariffs on Canadian and Mexican goods imported into the US, has heightened concerns for Canadian industries. These measures are poised to significantly alter trade dynamics between the two countries.
 

Impact on Canadian industries

The implications of these tariffs are considerable, especially given the deep trade ties established under the United StatesMexico-Canada Agreement. The size and duration of the tariffs would not only disrupt markets, but would create further economic uncertainty, dampening business investment and consumer confidence. As Canada navigates this evolving trade landscape, businesses must closely monitor developments and adapt their strategies to mitigate risks.
 

Retaliatory measures and inflationary pressures

Tariffs, if introduced, will contribute to inflationary pressures, as increased costs for imported products can drive up prices for final goods. Retaliatory measures could further amplify these effects, resulting in higher costs for consumers and businesses alike.
 

Longer term investment uncertainty

Uncertainty surrounding US trade policy and the potential for additional tariff increases will weigh heavily on business sentiment and investment trends in Canada. Potential outcomes can include delayed and reduced investments and/or investment plans being cancelled altogether due to concerns about rising costs and market volatility. This environment of uncertainty threatens to prolong longer-term underperformance in business investment, putting further downward pressure on productivity and wage growth in the Canadian economy.

The above points highlight key concerns that warrant attention as we move forward. As such, we will provide addendums or supplements to this outlook as needed.