TD analysis shines a light on how Trump's trade policy has hit Canadian businesses
US tariffs imposed earlier this year are creating measurable pressure points across Canada’s economy, with steel and automotive industries bearing the brunt of the trade measures, according to a new analysis by TD Economics.
The report reveals that Canadian exports to the United States are underperforming in the most tariff-targeted industries. Steel exports, among the first to face US trade barriers, have suffered the worst performance as tariffs doubled to 50%. The automotive sector has also taken a significant hit, with exports recently plunging to late-2022 levels as tariffs took effect in April.
“Canadian automakers have since slashed production as they deal with trade challenges,” said Marc Ercolao, TD Economics economist and author of the report.
Impact on markets
Real GDP data shows a clear divergence between trade-exposed sectors and less vulnerable service industries. Manufacturing has been the clear laggard, contracting by roughly 1.5% so far this year. At almost 10% of the economy, this sector alone reduces headline growth by over a tenth of a percentage point.
The labour market is also showing strain in trade-exposed industries. Of approximately 265,000 jobs created since November, highly export-exposed industries accounted for less than 5% of the gain. Energy, transportation and warehousing, and agriculture sectors have experienced outright job losses over the past six months.
Canadian businesses are attempting to adapt by reorienting supply chains and pursuing alternative markets. Exports to non-US markets have increased to over 30% over the past four months, while the share of Canadian exports to the United States has slipped below 70%.
Investment confidence declining
However, economists warn the most significant impact may be on capital investment. The Bank of Canada’s Business Outlook Survey highlighted that uncertainty is causing firms to delay new investment plans, focusing instead on routine maintenance.
“Capital spending is the one area that is likely to be the most adversely affected by tariff uncertainty,” Ercolao noted. “This is concerning since capital spending trends ultimately dictate the path of output, trade and employment over the longer run.”
Forecasters and the Bank of Canada will monitor whether these effects deepen and spread to industries with little tariff exposure. The analysis suggests that even if a trade deal is reached with the United States in the coming weeks, confidence in Canada’s export sector is unlikely to recover quickly.
The upcoming fall federal budget may provide the best opportunity for a near-term confidence boost by outlining an economic roadmap for Canada’s transformation, economists suggest.
How do you think Canada can navigate these trade challenges? Share your insights in the comments below.
