Canada's Economy Resists US Tariff Pressure: Why?

OTTAWA — Despite rising U.S. tariffs, Canada’s economy is showing “some resilience,” Bank of Canada Governor Tiff Macklem said. President Donald Trump recently imposed new 35 percent tariffs on a range of Canadian goods, including steel, aluminum, autos and semi-finished copper.

Experts say the Canadian economy is struggling, but there are no signs of a major downturn. TD Bank economist Mark Ercolao said expectations were more pessimistic, but the worst-case scenario has been avoided.

Statistics Canada data showed GDP contracting slightly in April and May, but the economy rebounded slightly in June, putting it at zero growth for the quarter.

Export-oriented industries such as manufacturing and transportation have been hit hardest. The government is introducing measures to support workers and plans to increase spending on defense and infrastructure.

The unemployment rate has risen to nearly 7 percent, but employment continues to grow in other sectors of the economy and consumer activity remains strong. The Bank of Canada left its key rate at 2.75%, indicating confidence in the economy’s stability.

BMO analysts raised their forecast for the third quarter, expecting Canada to avoid a technical recession this year. Looking ahead, the economy will continue to grow, but at a “permanently lower level,” Macklem said.

While Trump’s nominal tariff is 35%, thanks to the CUSMA waivers, the real rate is around 7%. However, with CUSMA potentially due to be renegotiated in 2026, the high tariffs could become leverage for Canada.

If the U.S. were to remove the waivers, Canada’s real GDP could shrink by an additional 1.25% by 2027. However, the gradual introduction of tariffs has given businesses time to adjust and mitigate the impact.