Markets are taking news of U.S. President Donald Trump’s 50-per-cent new tariffs on a range of Canadian goods largely in stride.
The Canadian dollar is hovering around 71 cents US, down only about a quarter of a cent from prior to the late Monday announcement. Short-term Canadian bond yields are only slightly lower, albeit the spread with U.S. Treasuries is growing - the U.S. two-year yield, for instance, is up 3 basis points this morning while the Canadian equivalent is down 1 point. While that suggests the market is pricing in some additional economic softness in Canada in the months ahead, the latest interest rate probabilities show a Bank of Canada rate hike is still more likely by the end of this year than a rate cut. Meanwhile, the TSX is rallying right along with Wall Street.
Some forestry stocks have seen selling off. West Fraser Timber (WFG-T) has been one of the hardest hit, losing more than 3%. Other stocks that may be feeling some impact include Air Canada (AC-T); the escalation has negative ramifications for cross-border traffic.
The new tariffs, threatened to take effect on Aug. 19, would cover a wide range of goods across sectors.
According to the Bank of Montreal, chemicals, plastics, electronics and industrial equipment would take the biggest hit under the new tariffs. Consumer goods and forestry products would be next on the list. Also impacted would be some manufacturing, machinery and industrial equipment and agriculture/food products.
Here is what economists and market strategists are saying in written commentaries:
Royce Mendes, managing director and head of macro strategy at Desjardins
“The new tariffs are exactly the type of escalation we expected to see during this phase of the trade negotiations – if anything, they’re somewhat less aggressive than feared. They fit President Trump’s signature style of leveraging the American market to force partners into making concessions. As a result, our forecasts already embed a period of uncertainty hanging over the Canadian economy and financial markets in the third quarter. While we don’t expect the Bank of Canada will need to cut rates, we see bond yields, stock prices and the Canadian dollar all falling further in the near term on elevated trade tensions over the next few months."
“That said, we expect the administration will want to announce a series of wins ahead of the midterm elections, including at least a partial resolution to North American trade disputes. That leaves us still optimistic about the prospects for the economy and financial markets in 2027."
Robert Kavcic, senior economist with BMO Capital Markets
“All in, the USTR [Office of the United States Trade Representative] estimates this move will cover $20 billion of goods (roughly $C28 billion), or about 5% of goods exports to the U.S., and roughly 0.8% of Canadian GDP. If that number is accurate, we judge that the weighted average effective tariff increase rom pre-trade war levels, which is currently about 5 ppts, would jump to around 7.5 ppts. While that still sounds digestible in the aggregate, some specific businesses/industries would be hit extremely hard. And, if the shelter of USMCA is in fact broken, that would do serious further damage to business confidence. As we’ve seen before though, 30 days provides room to de-escalate, and legal challenges would almost certainly follow.”
“Perhaps the market knows how this game is played now. For the Bank of Canada, following a well-behaved CPI report on Monday, this is just a reminder that uncertainty on the trade front has not gone away, and any rate hikes at this stage would need to be considered very, very, carefully—we believe the Bank is firmly on hold this year and, in their words, worsening trade relations with the U.S. could even open the door to easing again."
Andrew Hencic, director and senior economist with TD Economics
“Importantly, unlike the Liberation Day tariffs that were gradually walked back, the new tariffs are highly targeted. The new batch looks to affect the Canadian economy with minimal impact on U.S. industry and consumers. The 30-day implementation period does, in theory, leave time and room for negotiation. Given the backdrop of the USMCA negotiations, it’s reasonable to wonder just how long these tariffs will be in effect.”
“Given the targeted nature of these tariffs, it suggests that products were selected where demand is going to be highly responsive to the new duties. For Canada’s economic outlook, it’s also important to note that businesses have been operating under a cloud of uncertainty for over a year, and although the new announcements are likely to dent confidence further, a repeat of the scale of the confidence shock from 2025 remains a tail risk. Given the circumstances, should the tariffs be maintained it would likely take between 0.3 to 0.6 percentage points off GDP growth over the next year, absent any major changes to business behaviour or government response. We believe that the ultimate impact would likely track closer to the lower range of these estimates.”
“Businesses are likely to front-run the tariffs ahead of the August 19th deadline. This will increase the volatility in the trade data. The data are unlikely to reflect the full effect of the tariffs (if they come into force) until September, so the full macroeconomic impacts will start to show through in late-26.”
“What is important is that the downside economic risks from trade the BoC has continually cited remain ever-present.”
Taylor Schleich and Ethan Currie, economists with National Bank of Canada
“It’s not a foregone conclusion that these tariffs will enter into force and USTR Greer has already indicated they’re a negotiating tactic. But even if the levies are imposed, they’re unlikely to materially alter the BoC’s rate path. The Bank had previously said that ‘significant new trade restrictions on Canada’ could warrant rate cuts to support growth. Without minimizing the impact on affected firms, the scope of the levies does not appear sufficient to meet that easing threshold.”
“Still, these tariffs are not without some economic or policy consequence. At a minimum, they give the Bank [of Canada] more reason to remain patient and refrain from near-term rate hikes despite above-target inflation. The renewed uncertainty could also dent business confidence, which had recently been recovering (in part because of easing trade uncertainty). And while this should not jeopardize Canada’s recent return to growth, it could slow that momentum and make the ongoing recovery more uneven.”
Benjamin Tal, deputy chief economist of CIBC World Markets
“We see this as a sector-specific development rather than a broad macroeconomic story, though it is clearly significant for the industries directly affected. Notably, Section 338 has not been used since the 1930s and has never previously been used to impose tariffs, which suggests the measure could face legal challenges. The timing is also notable, and it is likely these tariffs will serve as additional leverage in upcoming CUSMA negotiations. At this stage, we do not believe the move is large enough to alter our current view on either the Fed or the Bank [of Canada].”
Douglas Porter, chief economist for BMO Capital Markets
“The latest U.S. tariff threat salvo of 50% is aimed at about 5% of imports from Canada. And much of the focus of the 18-month spat has been on what Canada sells to the U.S. economy. There’s much less attention paid to what the U.S. sells to Canada, in part because Canada dropped most of its retaliatory tariffs almost a year ago. The BoC estimates that the average Canadian tariff rate on imports from the U.S. is now 1.5% (vs 5.0% the other way, prior to Monday’s bombshell announcement).”
“What’s notable is that even with a modest tariff rate, U.S. exports to Canada have dropped about 5% in the past 18 months. As a result, the share of U.S. exports bound for Canada has fallen to a bit less than 14% so far this year from about 18% in 2024 (and around 22% when the FTA and NAFTA were signed). While that share had been falling fairly steadily in the prior 15 years, it has broken notably lower since the start of 2025.”
David Rosenberg, founder of Rosenberg Research
“These new measures affect $20 billion of targeted Canadian exports, or barely more than a 5% share of what the country ships stateside, but it is the message this sends — leverage during the USMCA negotiations, which promise to be tough and cast a renewed cloud over the local economy.”
Eric Lascelles, chief economist and head of investment strategy research at RBC
“It is not clear whether this latest tariff threat will actually be implemented and whether the tariffs would hold up to legal scrutiny, but it is still bad news for Canada, creating elevated uncertainty and potentially slowing the economy. The U.S. is also adversely affected, though at a smaller share of GDP.”