Canada’s economy is teetering on the edge of a recession in 2025 if U.S. tariffs, which began Tuesday, dig in for the long haul, economists caution.
U.S. President Donald Trump’s executive order, effective at 12:01 a.m. ET, slapped 25% tariffs on all goods from Canada and Mexico, with Canadian energy exports catching a lighter 10% hit. In retaliation, Prime Minister Justin Trudeau has pledged counter-tariffs on $155 billion of U.S. goods—$30 billion starting now, and $125 billion more in three weeks.
Tu Nguyen, an economist at RSM Canada, predicts a seismic shift ahead. “This trade clash will jolt Canada’s economic terrain—driving up prices, slashing jobs, and spooking consumers into retreat,” she said. From manufacturing to energy to food, no industry will dodge the fallout, with layoffs looming as businesses buckle under the strain. Unlike the swift rebound after the pandemic, Nguyen warns, “tariffs carve a deeper, longer-lasting scar, bending Canada’s growth trajectory downward for years.”
She foresees a rocky foreign exchange market, with the Canadian dollar—nicknamed the loonie—staying weak for months. Tuesday’s trading saw it dip slightly to 69.16 U.S. cents from Monday’s 69.31, though Capital Economics’ Stephen Brown suggests markets might still be betting on a Trump reversal. “The loonie’s modest slide hints at hopes for a fast backtrack,” he said.
Even so, Brown’s rosier outlook—a slower GDP grind rather than a full crash—hinges on the tariffs fading quickly. “If they stick, recession is a lock,” he warned. “Even a short stint marks a tectonic shift in U.S.-Canada trade ties.” He pegs a sustained 25% tariff as shaving 3% off Canada’s GDP in year one, undeterred by the 10% energy break, as soaring steel and aluminum tariffs—potentially hitting 50% with a March 12 stack—offset any relief.
The Bank of Canada, Brown predicts, will wield its interest rate axe next week, slashing deeper than planned through 2025 to brace for the slump. Meanwhile, Trump’s tariff spree rolls on—reciprocal duties kick in April 2, with cars, copper, lumber, and agriculture now in his crosshairs per Monday’s update.
Complicating Canada’s counterpunch: Parliament’s on ice until March 24, and Trudeau’s exit has left a leadership void. “A sluggish fiscal response could leave us exposed,” Brown noted. “If these tariffs linger, they’ll hobble Canada’s long-term potential—fiscal Band-Aids won’t fix that.”