Sectoral losses reveal impact beneath stable headline growth
A year after the United States heightened its tariff system, Canada’s economy has proven more resilient than many had feared, though the damage beneath the surface has been far from trivial, according to a report by RBC Economics.
The report, authored by assistant chief economists Nathan Janzen, Cynthia Leach, and Robert Hogue, alongside senior economist Claire Fan, assessed the consequences of US trade policy on Canada and the broader global economy in the 12 months following what it described as “Liberation Day” in April 2025.
Global trade held its ground
Despite US tariff measures covering more than 70% of total US imports in 2024 at their peak, global commerce did not collapse. Data from the CPB Netherlands Bureau for Economic Policy Analysis showed global trade, excluding the US, expanded 4.4% in 2025, nearly doubling from the 2.3% rate recorded in 2024.
Overall, US imports rose 2.7% (excluding price impacts) in 2025, and the trade deficit widened slightly to -US$926 billion. The distribution of where those imports originated shifted considerably, however, with reduced imports from China replaced by increased imports from Vietnam, Taiwan, and Thailand.
Canada’s US dependence exposed
Almost 90% of Canadian exports to the US remained tariff-free in 2025, largely due to exemptions under the Canada-United States-Mexico Agreement (CUSMA). Even so, Canada’s share of the US import market declined from 12.6% in 2024 to 11.2% in 2025 – the second-largest drop among major US trade partners after China.
For sectors where tariffs were applied, the toll was steep. Exports of steel products fell by 30% in 2025. The report argued that maintaining a low tariff rate through CUSMA remained critical – not only for Canada, but for US importers as well, noting that Canada was still the largest import source for 22 US states.
Ottawa’s restrained retaliation
The federal government’s initial tariff retaliation in March 2025 covered about a third of US imports before being repealed by September, except for those on steel, aluminum, and autos – a move that kept consumer prices down and gave the Bank of Canada flexibility to further lower its policy rate.
Estimates from HBS Pricing Lab, in conjunction with Bank of Canada researchers, showed about a quarter of Canada’s retaliatory tariff costs were ultimately passed through to consumer prices, with a relatively rapid decline after most retaliatory tariffs were removed.
Canadians also responded informally. Provincial governments enacted product boycotts on American-made liquor, while federal and provincial governments adopted “Buy Canada” procurement policies. The number of Canadians returning from the US shrank 25% year over year in 2025.
Regional divide deepens
The tariff burden has not fallen evenly. Ontario and Quebec – home to steel, aluminum, auto, and lumber manufacturing — both exceeded effective tariff rates of 6% on exports to the US. Newfoundland and Labrador, Alberta, and Saskatchewan, among others, sat below 1%. The report projected GDP growth in Ontario and Quebec would rank at the bottom of all provinces in 2026.
Economy beats grim forecasts
Despite the turbulence, Canada posted its first per capita GDP increase in three years in 2025, unemployment moved broadly sideways, and net foreign direct investment turned positive for the first time in more than a decade.
The report cautioned, however, that the calm on the surface obscured real pain underneath – particularly for targeted sectors and regions.
“For all the announcements and noise,” the report noted, “economies look remarkably similar overall, but with important distributional changes.”
