Trade War Escalation Sparks Caution in Banking Sector

Royal Bank of Canada (RBC) CEO Dave McKay has warned that the escalation of the global trade war is making banks more cautious about credit. McKay's comments come as tensions between the US and Canada continue to intensify, creating fresh uncertainty for businesses, investors, and lenders.

The concern is that companies facing higher costs, weaker demand, or uncertain access to major markets may become more cautious about borrowing, while banks may also tighten their approach to lending. McKay highlighted how prolonged tariff disputes can affect banks beyond financial markets.

RBC's own economic research has warned that a prolonged tit-for-tat trade war could damage growth on both sides of the border. The bank has also highlighted renewed uncertainty for Canadian exporters following the latest tariff developments.

McKay emphasized that banks will likely pay closer attention to companies heavily exposed to cross-border trade, tariffs, and supply chain disruptions if the US-Canada trade dispute continues to escalate.