Canada-U.S. Trade Conflict Set to Dent Economic Growth

The latest trade conflict between Canada and the U.S. is expected to weigh on growth and boost inflation in the Canadian economy, but its impact may be felt more deeply in the long term.

A report from Scotiabank Economics estimates that the combined effect of new U.S. tariffs and Canada's retaliatory measures will reduce GDP growth by about 0.4 percentage points and raise inflation by between 0.1 and 0.2 points.

The direct impact of U.S. tariffs is expected to lower Canadian GDP by around 0.3% at its peak in mid-2027, primarily through weaker exports. Canada's retaliatory tariffs will trim another 0.1 points from GDP, increasing costs for households and businesses and weighing on consumption and investment.

The report warns that the breakdown in negotiations and the introduction of tariffs on previously protected goods under CUSMA raises doubts about the reliability and durability of future agreements, which could have a lasting impact on business confidence and investment.