Trade War Escalation Threatens Canada's Economic Rebound

Economists are warning that Canada's economic recovery is at risk due to the re-escalation of the trade war with the United States. The US imposed 50% tariffs on approximately $28 billion worth of Canadian goods over the weekend after trade talks fell apart.

According to Bank of Montreal, the new tariffs will likely shave off half a percentage point from Canada's economic growth as business investment and confidence decline. Prime Minister Mark Carney has pledged to retaliate with dollar-for-dollar tariffs starting September 8, which economists warn could add to inflation in Canada.

Bradley Saunders, North American economist at Capital Economics, notes that the new tariffs push Canada closer to a recession, particularly if the US ramps up attacks in response to Ottawa's retaliation. The extent of the hit to the economy will depend on the degree of fiscal stimulus from Canadian governments in response to the new US duties.

Additionally, US President Donald Trump announced plans to hike tariffs on all vehicles, auto parts, and steel from Canada to 50% on January 1.