Canada's economy experiencing deceleration in the presence of Donald Trump
Living with the Weight of U.S. Tariffs: An Uneasy Ride for Canada's Economy
Canada might've dodged the heaviest bullets, but the country's economic health remains in question as it grapples with its immediate neighbor—the U.S. Still, American authorities slap a 25% tariff on an array of Canadian goods, including steel, aluminum, automotive vehicles, and some other products. Moreover, since April 3, over-the-counter energy and potash exports that don't toe the line with the Canada-U.S.-Mexico Agreement might catch a 10% tax. This means American importers have to fork over extra cash each time their shipments cross the border, stalling demand in the U.S. and guess who's hurting? That's right, Canada. In fact, Canadian exports to the U.S. dipped nearly 7% in March, reaching CAD 52 billion (EUR 33.2 billion).
Now, let's dance around these tariffs, shall we? They've been imposed, lifted, reinstated by President Donald Trump, and their waltz has already spawned non-negligible effects on Canada's economy. Back in March, the country lost 33,000 jobs, marking its largest job loss since January 2022. The unemployment rate ticked up by 0.1%, hitting 6.7%. As Douglas Porter, chief economist at the Bank of Montreal, wisely pointed out, "Prolonged uncertainty is a potent force: businesses are wary of investing, they tiptoe on the sidelines until these tensions ease."
More to Consider
- Trade and Exports: Turns out trade with the U.S., Canada's biggest trading partner, is still substantial despite the tariffs. In recent data, Canada's exports to the U.S. exhibited a 1.2% increase, while imports saw a 0.8% climb. However, looming global trade challenges may cause a 1.5% drop in world merchandise trade volume by 2025, indirectly affecting Canada[1].
- Economic Growth: The Bank of Canada trimmed its 2024 GDP growth forecast by 0.3 percentage points, thanks in part to the uncertainty surrounding trade disputes like U.S. tariffs[1]. On the bright side, Canada's economy showed some resilience before stronger Q2 results, but caution remains the watchword[1].
- Employment and Labor Market: The Canadian labor market's stabilized after a spell of overheating, sporting an unemployment rate of 6.4% in June 2024. However, youth unemployment has been creeping northward. The slowdown in economic growth due to tariffs and lower immigration could make job creation a tricky endeavor[1][5].
- Long-Term Impact: By 2027, the Parliamentary Budget Officer predicts that due to slower population growth (partly linked to ongoing economic uncertainties including tariffs), Canada could lose 1.3 billion hours of work and see a 1.7% drop in real GDP compared to previous plans. But hey, at least GDP per capita might rise a touch, offsetting some of the overall negative impacts on the economy[5].
The Big Picture
American tariffs have left Canada in a precarious economic limbo, tempering export growth to the U.S., nudging overall GDP growth projections downhill, and casting a shadow over employment prospects, particularly for the younger population. These effects join demographic challenges and immigration policy changes to create a complex situation with moderately negative impacts on Canada's economic health and labor market[1][5].
- The following American tariffs on Canadian goods, such as steel, aluminum, automotive vehicles, and over-the-counter energy and potash exports, have resulted in a 7% dip in Canadian exports to the U.S. in March.
- As a result of these tariffs, Canada lost 33,000 jobs in March, marking the largest job loss since January 2022, with the unemployment rate inching up by 0.1%.
- In the general news, the Bank of Canada has trimmed its 2024 GDP growth forecast by 0.3 percentage points due to the uncertainty surrounding trade disputes, like U.S. tariffs.
- The Parliamentary Budget Officer predicts that by 2027, slower population growth partly linked to ongoing economic uncertainties, such as tariffs, could lead to a 1.7% drop in real GDP compared to previous plans.
- The following issues, including tariffs, demographic challenges, and immigration policy changes, have cast a significant shadow over Canada's economic health and labor market, with moderately negative impacts particularly on employment prospects for the younger population.
