Canada's Economic Rebound at Risk as Trade War Escalates

A re-escalation of the trade war with the United States threatens Canada's economic rebound. Over the weekend, the U.S. imposed a 50% tariff on roughly $28 billion worth of Canadian goods. This includes cement, honey, alcohol, and textiles, which amount to around five percent of Canada's exports to the U.S.

Trevor Tombe, an economics professor at the University of Calgary, warns that the machinery and electronics industries will take a sharp hit as billions of dollars of their U.S. exports are targeted by the new tariffs. He estimates that exporters scaling back production in response could result in around 50,000 job losses across targeted industries, with another 35,000 jobs affected through the supply chain.

While some economists believe Canada's economy can absorb the hit from a macro perspective, others are more cautious. Randall Bartlett, deputy chief economist at Desjardins, expects the domestic economy will avoid a recession but notes that the tariffs and associated uncertainty will cut GDP growth in the second half of the year down to about one percent.

Bradley Saunders, North America economist at Capital Economics, warns that the new tariffs push Canada closer to a recession, particularly if the United States ramps up attacks in response to Ottawa's own retaliation. He estimates that Canada's effective tariff rate has nearly doubled to 5.6% from 2.9% previously.