So far, foreign exporters aren't bearing the cost of the trade measures
The United States’ recent tariff increases have fallen short of their intended economic objectives, leaving the overall North American outlook largely unchanged, according to a new analysis from RBC Economics.
The August 1 announcement raised US tariff rates to the upper range of 10% to 15%, but exemptions under the Canada–United States–Mexico Agreement (CUSMA) continue to shield over 90% of Canadian exports from duties. As a result, RBC said Canada’s economic forecast remains unchanged despite trade tensions.
Tariffs failing to deliver on four key goals
RBC senior economist Claire Fan noted that US tariffs this year were designed to make foreign exporters bear the cost, narrow the trade deficit, revive domestic manufacturing, and reduce the federal deficit. “Early data suggests tariffs have not been fruitful at achieving those goals,” she wrote, adding that the measures will likely be scaled back as their economic costs mount.
Evidence so far shows that US buyers—not foreign exporters—are absorbing the majority of tariff costs. The US import price index, excluding petroleum, has risen in 2025, indicating limited price concessions from overseas sellers.
While isolated declines in import prices for certain household goods have occurred, reductions remain modest compared with average US tariffs. For example, China has faced a roughly 30% increase in tariffs since January, but import prices have fallen by only 2%.
Manufacturing revival elusive
RBC’s analysis found little sign that tariffs are revitalizing US manufacturing. Production and capacity use remain close to 2013–2014 levels, while manufacturing employment has dropped by more than 100,000 positions over the past year.
Future hiring prospects are also weak, with the Institute for Supply Management’s Manufacturing Employment Index falling to its lowest level since the global financial crisis, excluding pandemic disruptions. RBC said reshoring efforts face long-term challenges, including high capital costs and limited labour supply.
Trade and fiscal deficits remain high
Despite a temporary narrowing in June, the US goods trade deficit for the first half of 2025 was 28% wider than in the same period last year. RBC attributed this in part to importers stockpiling ahead of tariff hikes. Without significant changes to fiscal policy, the bank expects the deficit to remain elevated.
On revenue, tariffs have boosted US Customs collections by an estimated US$65 billion since April, with annual totals projected at US$350 billion. However, this is minimal compared with a federal deficit expected to rise from US$1.8 trillion this fiscal year to US$3 trillion by 2034.
Policy outlook
RBC anticipates the US Federal Reserve will cut interest rates in December, once labour market softening outweighs inflation concerns. In Canada, the Bank of Canada is expected to maintain its 2.75% policy rate, supported by fiscal measures and stable inflation.
Fan said that while US tariffs have raised costs, they have provided “little offsetting benefit,” making their current levels unsustainable heading into 2026.
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