{"id":13091,"date":"2026-07-24T13:58:11","date_gmt":"2026-07-24T13:58:11","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/?p=13091"},"modified":"2026-07-24T19:06:49","modified_gmt":"2026-07-24T19:06:49","slug":"six-takeaways-for-canada-from-latest-u-s-tariff-threats-gdp-likely-rose-again-in-may","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/forward-guidance\/six-takeaways-for-canada-from-latest-u-s-tariff-threats-gdp-likely-rose-again-in-may\/","title":{"rendered":"Six takeaways for Canada from latest U.S. tariff threats; GDP likely rose again in May"},"content":{"rendered":"\n
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For the week of July 27th<\/sup><\/strong><\/p>\n\n\n\n

Another month of recovery is in the cards for Canada\u2019s economy next Friday where we expect to see a 0.2% increase in GDP data for May (more details below), but the outlook is once again clouded by the latest bout of U.S. tariff threats that suggest the path ahead could be bumpier.<\/p>\n\n\n\n

Just how bumpy is challenging to clearly assess. For one, we\u2019re keenly aware that tariffs threatened in the past have often been significantly modified or halted ahead of the implementation date. New U.S. Section 301 (broader global) tariffs imposed on July 24 maintain a duty free exemption for imports from Canada under CUSMA, and the more severe 50% Section 338 product- and Canada-specific tariffs don\u2019t take effect until 30 days after signing.<\/p>\n\n\n\n

Secondly, as we emphasized<\/a> back in February 2025, the economic impact will depend on a wide range of factors from how firms creatively navigate tariffs, the path of the Canadian dollar to government responses and the Bank of Canada\u2019s decisions.<\/p>\n\n\n\n

That said, there are six early thoughts from the developments of this week.<\/p>\n\n\n\n

1. Big picture: Canada should be able to manage through new wave of potential tariffs<\/strong><\/p>\n\n\n\n

Ultimately, we don\u2019t expect the recently announced 50% U.S. tariffs to significantly change broader Canadian growth trends if imposed as threatened. We still expect aggregate growth to improve in the second half of the year, and the unemployment rate to trend downwards.<\/p>\n\n\n\n

In large part, that\u2019s because the new tariffs, while significant, will still impact a small segment of total trade. They affect about 5% of Canada\u2019s exports to the U.S, which would still leave more than 80% of exports crossing the border duty free. The average effective tariff rate on U.S. imports from Canada would rise from around 3% to 5.5%, still below but closer to other major U.S. trade partners like Europe and the U.K. (6%-7%).<\/p>\n\n\n\n

2. Targeted sectors would struggle<\/strong><\/p>\n\n\n\n

The overall economy should hold, but targeted sectors related to plastics, electrical machinery, furniture and home appliance manufacturing are likely to experience slowdowns, just like after the Section 232 tariffs on products including autos and steel that have created sectoral downturns.<\/p>\n\n\n\n

However, this time around, it will be easier for American importers to substitute away from many of these newly tariffed Canadian goods as they make up a small source of U.S. imports. About 3.7% of total U.S. imports of those products from the world in 2025 came from Canada, according to our estimates.<\/p>\n\n\n\n

That\u2019s different than tariffs on, say, aluminum where Canada made up the majority of U.S. imports, and American importers don\u2019t have alternative suppliers or the capacity\/infrastructure to domestically produce the good. Importantly, the pain on a sector from a tariff depends on how easy it is for the American importer to substitute from Canada, and that varies significantly by product.<\/p>\n\n\n\n

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Finally, substitution won\u2019t be nearly as easy for Canadian exporters looking for alternative foreign markets. In 2025, we counted 81% of Canada\u2019s exports of tariffed products went to the U.S. with certain sectors showing even tighter dependence (e.g. plastics and articles at 92%). Trade diversification remains a more elusive goal for Canada that will take considerable time to achieve.<\/p>\n\n\n\n

3. New tariffs would further exacerbate provincial divergences<\/strong><\/p>\n\n\n\n

Previous tariffs on auto, steel, and lumber products disproportionally impacted Ontario, Quebec, and British Columbia. Energy producing provinces have been less impacted by the trade war as they continue to be excluded from tariff shocks, and have seen economy-wide revenues rise in 2026 with global oil prices moving higher.<\/p>\n\n\n\n

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