Canadian economy resilience to tariffs has surprised economists, despite mounting trade pressure from the United States. Over the past few months, U.S. President Donald Trump’s administration imposed steep duties on Canadian goods, including aluminum, steel, copper, and automobiles. Yet, Canada’s economy continues to grow modestly, defying worst-case forecasts.
TD Bank economist Marc Ercolao acknowledged this outcome was unexpected. He said most analysts had predicted a significant economic downturn earlier this year. However, current indicators show a much more stable landscape. “We are avoiding the worst-case scenario,” he said.
Bank of Canada Governor Tiff Macklem echoed that sentiment last week. He stated that while the economy shows signs of strain, it continues to demonstrate resilience. Statistics Canada’s second-quarter data revealed small GDP contractions in April and May. However, preliminary figures for June indicate a slight rebound. If confirmed, the country would post flat GDP growth for the quarter, avoiding a technical recession.
Some of this stability stems from early economic momentum. Businesses accelerated operations in the first quarter to pre-empt tariffs. This created a buffer that partially offset losses during the second quarter. Although pinpointing the precise effects of tariffs remains difficult, Ercolao noted a clear trend of slowed growth over the last six months.
Export-heavy sectors like manufacturing and transportation have felt the sharpest impacts. Nevertheless, Canada’s services sector has remained steady. Moreover, consumer demand, while restrained, continues to grow. According to Macklem, consumption is still expanding—albeit modestly—and is likely to continue into the third and fourth quarters.
To support sectors hit hardest by tariffs, the federal government launched targeted programs. These include aid for displaced workers and increased spending on defense and infrastructure. Ottawa’s personal income tax cuts, introduced at the beginning of August, also aim to bolster domestic demand.
Despite a rising unemployment rate approaching 7%, several industries continue to hire. Consumer confidence has improved slightly, according to Bank of Canada surveys. The central bank kept its interest rate unchanged at 2.75% for a third straight decision, a sign that officials believe inflation remains under control.
Had policymakers feared a deep downturn, Ercolao said, they likely would have lowered rates. In fact, BMO revised its third-quarter forecast into positive territory following the recent GDP updates. Chief economist Doug Porter cited stronger domestic travel demand and improved economic sentiment as key reasons for this revision.
Porter also downplayed the headline shock of Trump’s 35% tariffs. Because of exemptions under the Canada-U.S.-Mexico Agreement (CUSMA), BMO estimates the effective average tariff rate remains closer to 7%. While this is higher than before, it’s not catastrophic.
Nonetheless, Porter warned that these tariffs could loom large over future trade negotiations. With CUSMA due for renegotiation in 2026, any failure to renew it could lead to full enforcement of the 35% rate. That scenario would pose a more serious threat to Canada’s long-term trade strategy.
The Bank of Canada modeled a worst-case scenario where the U.S. removes Canada’s exemption and expands global tariffs. In that case, real GDP would fall by an additional 1.25% by 2027. While concerning, economists say such a decline would be serious but not disastrous.
Ultimately, Ercolao believes that Canada’s ability to adapt has softened the tariff impact. The slow rollout of U.S. trade measures gave Canadian businesses time to adjust. “If Trump had imposed all tariffs at once,” he said, “the shock would have been severe. But the gradual approach helped reduce damage.”
The Canadian economy resilience to tariffs now depends on continued consumer strength, policy support, and careful navigation of upcoming trade talks. For now, Canada is holding steady—unexpectedly, but defiantly.
