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CANADA: Trump Tariffs Seen Chilling Canada Exports & Capex, Boosting Inflation

CANADA
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  • U.S. President-elect Donald Trump’s 10% tariff plan could reduce Canada export volumes 5% by early-2027 according to TD, and Canada may introduce retaliatory tariffs, which may lead to GDP stagnating. Could be a “temporary and modest re-acceleration of inflation to the 2.5–3.0% YOY range."
  • Oxford Economics said tariffs could lead to a 0.7% median output price increase across sectors. CPI inflation could rise to an average of 2.6% in 2026 and GDP would be 0.9% lower by 2029.  “Rising inflation and a weaker Loonie prompt the BoC to hike interest rates by a cumulative 125 bps to 3.5% by early 2026 and hold the overnight rate in restrictive territory for longer.”
  • BMO noted that if inflation holds below 2% given potential economic weakness, BoC could continue easing interest rates, with a more cautious 25 bp cut this December.  
  • Public Policy Forum sees chance to ease the pain with diplomats emphasizing Canada's critical minerals will be helpful amid a potential US-China trade war. Several cabinet ministers made this argument this week, and noted close ties on energy.   
  • Canada faces more pressure to accelerate its intention to bring defense spending to 2% of GDP, and may also want to match any new U.S. tax cuts.
  • Canada leads G7 meetings next year and hosts a leaders' summit in Alberta. Justin Trudeau ran afoul of Trump at the last G7 meeting in Canada when Trump was in his first term.  
  • Trump win may lead to reduced business confidence and capital spending, CIBC says.
  • Oxford Economics noted that stricter U.S. immigration could attract asylum seekers to Canada, impacting resources while it targets to limit temporary residents to 5% by 2027.
  • Canada GDP will take hit of at least 1% under tariff plan and Canadian retaliation. Bigger threat is Trump scrapping USMCA that's up for renegotiation in 2026, Capital Economics says.
  • There are already some signs the U.S. will push again for more access to Canada's dairy market, a sector of vital political interest in Quebec.
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  • U.S. President-elect Donald Trump’s 10% tariff plan could reduce Canada export volumes 5% by early-2027 according to TD, and Canada may introduce retaliatory tariffs, which may lead to GDP stagnating. Could be a “temporary and modest re-acceleration of inflation to the 2.5–3.0% YOY range."
  • Oxford Economics said tariffs could lead to a 0.7% median output price increase across sectors. CPI inflation could rise to an average of 2.6% in 2026 and GDP would be 0.9% lower by 2029.  “Rising inflation and a weaker Loonie prompt the BoC to hike interest rates by a cumulative 125 bps to 3.5% by early 2026 and hold the overnight rate in restrictive territory for longer.”
  • BMO noted that if inflation holds below 2% given potential economic weakness, BoC could continue easing interest rates, with a more cautious 25 bp cut this December.  
  • Public Policy Forum sees chance to ease the pain with diplomats emphasizing Canada's critical minerals will be helpful amid a potential US-China trade war. Several cabinet ministers made this argument this week, and noted close ties on energy.   
  • Canada faces more pressure to accelerate its intention to bring defense spending to 2% of GDP, and may also want to match any new U.S. tax cuts.
  • Canada leads G7 meetings next year and hosts a leaders' summit in Alberta. Justin Trudeau ran afoul of Trump at the last G7 meeting in Canada when Trump was in his first term.  
  • Trump win may lead to reduced business confidence and capital spending, CIBC says.
  • Oxford Economics noted that stricter U.S. immigration could attract asylum seekers to Canada, impacting resources while it targets to limit temporary residents to 5% by 2027.
  • Canada GDP will take hit of at least 1% under tariff plan and Canadian retaliation. Bigger threat is Trump scrapping USMCA that's up for renegotiation in 2026, Capital Economics says.
  • There are already some signs the U.S. will push again for more access to Canada's dairy market, a sector of vital political interest in Quebec.