Canada's Economy Braces for Tariff-Induced Slowdown

Canada's economy is bracing for a potential slowdown due to fresh US tariffs targeting Canadian-made goods. The new Section 338 duties will take effect on August 20, impacting around 5% of Canada's exports to the US.

The targeted sectors, plastics product manufacturing, furniture, electrical machinery, and beverage production, are expected to face significant headwinds. However, RBC Economics suggests that the damage may be more contained than earlier tariff rounds on steel and aluminum.

Approximately 81% of Canada's exports of the tariffed products were destined for the US in 2025, with plastics and articles showing a dependence as high as 92%. This highlights the importance of trade diversification for Canada.

The Bank of Canada is expected to hold its overnight rate at current levels through year-end, according to RBC Economics. The central bank is caught between supporting the tariff-burdened economy and keeping inflation in check due to rising oil prices.