{"id":3288,"date":"2025-08-14T16:28:24","date_gmt":"2025-08-14T16:28:24","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/2025\/08\/14\/u-s-tariffs-fall-short-of-goals-leaving-outlook-little-changed\/"},"modified":"2026-03-31T19:15:30","modified_gmt":"2026-03-31T19:15:30","slug":"u-s-tariffs-fall-short-of-goals-leaving-outlook-little-changed","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/financial-markets-monthly\/u-s-tariffs-fall-short-of-goals-leaving-outlook-little-changed\/","title":{"rendered":"U.S. tariffs fall short of goals, leaving outlook little changed"},"content":{"rendered":"\n
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Highlights:<\/em><\/strong><\/p>\n\n\n\n

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Announcements on Aug. 1 raised the United States\u2019 tariff rates toward the upper end of expected range of 10% to 15%, but CUSMA compliant trade exemptions continue to limit the impact on Canadian products.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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We still expect further but modest deterioration in the Canadian labour market. This outlook combined with rising fiscal stimulus is why we think the Bank of Canada will maintain its current policy stance.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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The U.S. Federal Reserve will wait longer to cut rates from restrictive levels, once slack in the labour market grows sufficiently large to override inflation concerns. We think that will be in December.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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Issue in focus:<\/strong> U.S. tariffs implemented this year were meant to be paid by foreign exporters, recharge U.S. manufacturing, and narrow the size of U.S. trade and fiscal deficits. Early data suggests tariffs have not been fruitful at achieving those goals, and we expect they will start to be scaled back as the net cost to the U.S. economy starts to show up more meaningfully.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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Forecast changes:<\/h2>\n\n\n\n

Another month of substantial trade related news from the U.S. didn\u2019t move the needle on our forecasts. <\/strong>The August 1 announcement of higher reciprocal tariffs on countries that hadn\u2019t reached a trade deal with the U.S. pushed the average effective U.S. tariff close to the upper limit of our expected 10% to 15% range, after accounting for collection delays and shifts in trade flows<\/a> this year.<\/p>\n\n\n\n

The blanket International Emergency Economic Powers Act (IEEPA) tariff on Canada was raised from 25% to 35% but continues to impact a small share of exports<\/strong> that are not compliant with the CUSMA free trade agreement. Other sector specific tariffs including on steel and aluminum products remain, but we continue to point to CUSMA exemptions as the most important backstop for North American trade relations, allowing more than 90% of Canadian exports to access the U.S. market duty free. Our Canadian outlook is, therefore, broadly unchanged.<\/p>\n\n\n\n

We still expect U.S. tariffs are severe enough to slow U.S. growth. <\/strong>Job growth has already decelerated\u2014including in the trade-sensitive manufacturing sector that was meant to benefit from tariffs. That\u2019s raising the odds of an interest rate cut from the Federal Reserve earlier than our base case forecast that assumes December. Still, the historically low unemployment rate and limited layoffs are more consistent with gradual softening in the labour market than the beginning of a recession.<\/p>\n\n\n\n

We hold the expectation for a first rate cut from the Fed in December, <\/strong>once labour market deterioration becomes clear and large enough to override concerns about inflation. Softening in the U.S. economy should also suggest current tariffs are too severe to be sustained, with little offsetting benefits \u2013 tariffs thus far have failed to accomplish the main goals they were set to achieve (see more in issue in focus<\/a> below).<\/p>\n\n\n\n

A more detailed breakdown of our forecast:<\/h3>\n\n\n\n