US President Donald Trump's threat to impose tariffs on Canadian goods has sent shockwaves through the Canadian economy, raising concerns about potential damage to various sectors. Economists warn of far-reaching impacts, including a slowdown in growth, potential pressure on inflation, and uncertainty in the housing market.
The threat of US tariffs on Canadian goods looms large, causing economic uncertainty and anxiety. After a month-long pause, President Donald Trump's administration is set to impose a 25% tariff on goods imported from Canada to the US, along with a 10% tariff on energy products like oil and electricity, and critical minerals like aluminum. These tariffs are scheduled to take effect on March 4th.
Furthermore, Trump has also ordered an investigation into a possible 25% tariff on international lumber products. The full extent of Trump's commitment to these tariffs remains unclear, as he previously backtracked on similar tariffs on international steel and aluminum imports in 2019. However, even a short-term implementation of tariffs could significantly impact the Canadian economy, according to economists from Canada's 'Big Five' banks.Economists warn that the duration of these punitive tariffs will be crucial in determining the economic fallout. A two-year trade war could hinder growth well into 2026, while a six-month duration might allow for a rebound next year. Either scenario, however, would result in deteriorating economic conditions in 2025. The looming trade uncertainty also casts a shadow over the Bank of Canada's monetary policy decisions. While the recent robust GDP data has led to reduced expectations of a rate cut on March 12th, the possibility of a tariff war could virtually guarantee a reduction. Some economists argue that the central bank should maintain the policy rate at 3% given the recent economic strength, while others anticipate a quarter-point cut in response to the trade uncertainty.Beyond the immediate economic impact, the tariff threat has also created uncertainty in the Canadian housing market. Experts predict that housing market activity would witness a healthy level in 2025 as mortgage rates decline and prices grow modestly in 2024. However, the looming tariff uncertainty has already impacted housing market conditions in January, with sales weakening towards the end of the month as Canadians awaited potential drastic increases in tariffs. This uncertainty, if prolonged, could dampen housing demand and potentially lead to a deterioration in housing conditions. Moreover, weaker housing market conditions often correlate with weaker labor market conditions, as reduced purchasing power can dampen job creation and economic growth
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