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For the week of May 5th, 2025
Trade and employment data to show how Canadian economy reacted to tariffs
We expect Canada’s trade balance swung back to a surplus in March and the labour market shed more jobs in April as early signs of how the Canadian economy evolved with the onset of U.S. tariffs.
To recap, blanket 25% tariffs on virtually all U.S. imports from Canada were briefly imposed on March 4 before being rolled back for trade compliant with the CUSMA/USMCA free trade deal days later. Still, tariff fears drove a surge in U.S. imports as seen in the advance estimate of U.S. trade data for March. We expect those U.S. imports came partially from Canada as Canadian rail traffic bounced back in March after falling in February, but from other regions as well. China reported a rise in exports to the U.S. in March.
We expect exports from Canada rose in March, enough to flip the trade balance back into a surplus from a deficit in February. We’re also watching the share of trade that’s now categorized as compliant with USMCA. Only 38% of U.S. imports from Canada reportedly used the CUSMA/USMCA in 2024, but we expect that share will rise relatively quickly as traders rush to satisfy the rules of origin requirements under CUSMA to avoid paying substantial tariffs.
Outside of trade, tariffs also appear to be choking off early signs of improvement in the Canadian labour market with employment falling by 33,000 in March, while the participation rate dropped for a second consecutive month and unemployment rate ticked up to 6.7%. In April, we expect those trends persisted and look for another 10,000 decline in jobs, alongside a 6.8% unemployment rate.
The bottom hasn’t fallen out yet in the labour market – the unemployment rate remains below the 6.9% peak late last year. But, softening hiring demand shown by a persistent decline in the number of job openings suggests more weakness is likely ahead. We expect the unemployment rate will continue to edge higher into the second half of this year.
Week ahead data watch:
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The Federal Reserve is widely expected to hold rates steady at its meeting next week. The economic outlook for the U.S. has dimmed amid heightened tariffs but inflation risks remain present. We expect that will keep the Fed on the sidelines until real weakness due to the trade shock shows up. We don’t expect the Fed will restart the easing cycle until later in September.
Canadian calendar
| Day and time | Indicator | RBC | Consensus | Previous |
|---|---|---|---|---|
| Tue-08:30 | Trade balance (C$, bil) (Mar) | 0.9 | -1.5 | |
| Fri-08:30 | Employment (m/m, thous.) (Apr) | -10 | -33 | |
| Fri-08:30 | Unemployment rate (%) (Apr) | 6.8 | 6.7 |
U.S. calendar
| Day and time | Indicator | RBC | Consensus | Previous |
|---|---|---|---|---|
| Mon-10:00 | ISM Non-mfg (Apr) | 50.5 | 50.6 | 0.2, 2.8 |
| Tue-08:30 | Trade balance ($US, bil) (Mar) | -137.7 | 0.2, 3.1 | |
| Wed-14:00 | Fed funds target (%, top of range) | 4.50 | 4.50 | 4.50 |
| Thu-08:30 | Jobless claims (thous.) (w/e) | 215 | 224 | 222 |
Source: Refinitiv, RBC Economics
This report was authored by Assistant Chief Economist Nathan Janzen and Senior Economist Claire Fan.
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