Canada Braces for Trade Shock as US Tariffs Escalate

TD Securities warns of a trade shock to Canada's economy due to new US tariffs under Section 338. The higher tariff rate will push total policy-implied rates towards 7.5% from ~5.0%, marking a material escalation in the ongoing trade dispute between the US and Canada.

The report estimates that the combined measures will trim about 0.3 percentage points from GDP by 2027, with growth effects concentrated in late 2026. Fiscal supports of CAD 7.5bn are expected to partially cushion the blow while inflation effects remain contained.

Tariff escalation will impact Canadian exports, particularly primary metals and motor vehicles, which have contributed to recent strength. However, the report does not expect to see outright contractions in quarterly GDP.