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The 25% tariff on Canadian exports, 10% on energy products that has been threatened by President Trump on the Canadian economy would have a significant impact on growth in this country.
Our forecasts suggest that if we do get hit by these tariffs and the tariffs are permanent, then we could see economic activity as much as 4% lower, the unemployment rates as much as 1% higher over the next two years.
Even if we avoid that worst case scenario, though, we do have a situation where the trade uncertainty is causing business investment to be weaker and higher in decisions weaker than what we had previously assumed.
For the Bank of Canada, a tariff scenario would be potentially problematic.
The economy would weaken, which normally would necessitate lower interest rates.
However, at the same time, inflation, at least in the near-term, would spike higher.
Our research suggests that the spike in inflation would not be big enough or persistent enough to deter the Bank of Canada from cutting interest rates more than they otherwise would have done.
The Bank of Canada, though, like the rest of us, will be hoping that they don&#8217;t have to make that judgment call, that calmer heads will prevail and that we will not be hit by permanent 25% tariffs on our goods.

How U.S. tariff policies could affect Canada’s economic outlook

How U.S. tariff policies could affect Canada’s economic outlook

How U.S. tariff policies could affect Canada’s economic outlook

Andrew Grantham

Senior Economist

CIBC