Tariffs Ahead: Canada's Economy Faces New Headwinds as US Trade Policies Tighten

A fresh wave of US tariffs targeting Canadian-made goods is set to take effect on August 20, but according to RBC Economics, it will have a limited impact on the broader economic recovery. The new Section 338 duties will apply to around 5% of Canada's exports to the US, leaving more than 80% of goods duty-free under the Canada, United States, Mexico Agreement (CUSMA).

The average effective tariff rate on US imports from Canada would increase from around 3% to 5.5%, but this is still below the 6%, 7% levied on major trade partners such as the European Union and the United Kingdom.

RBC's chief economist Frances Donald and her team expect aggregate growth to improve in the second half of 2026, despite the tariffs, and for the unemployment rate to trend downwards. However, they warn that business sentiment is a key wildcard and that even if the tariffs are walked back before the deadline, uncertainty will still slow investment decisions.