Mortgage industry eyes fallout as Trump’s trade crackdown triggers new uncertainty in housing and interest rate policy
In a major escalation of US-Canada trade tensions, president Donald Trump announced a sweeping 35% tariff on Canadian imports, effective August 1, raising alarms over the potential impact on Canada's already fragile economy and its housing market.
The new tariff, announced Thursday evening in a public letter to Canadian Prime Minister Mark Carney, comes in response to earlier retaliatory duties imposed by Ottawa. Trump tied the measure not only to trade concerns but also to fentanyl-related enforcement, warning that Canada's failure to act on the issue had prompted harsher penalties.
“Instead of working with the United States, Canada retaliated with its own Tariffs,” Trump wrote. He added that the US might consider revising the 35% tariff if Canada helps “stop the flow of Fentanyl.”
The 35% blanket rate will apply in addition to these existing levies: 50% on steel and aluminum, 25% on autos, and a new 50% levy on copper starting August 1. Other Canadian imports already face a 25% tariff imposed earlier this year, with exemptions for goods compliant with the United States-Mexico-Canada Agreement. Canadian energy imports are subject to a 10% levy.
Trump warned that any Canadian retaliation would be met with further increases: “If for any reason you decide to raise your Tariffs, then, whatever the number you choose to raise them by, will be added onto the 35% that we charge.”
He also accused Canada of “many Tariff, and Non-Tariff, Policies and Trade Barriers, which cause unsustainable Trade Deficits against the United States ... The Trade Deficit is a major threat to our Economy and, indeed, our National Security!”
In response, Prime Minister Carney defended Canada’s record on fentanyl and trade policy. “Canada has made vital progress to stop the scourge of fentanyl in North America,” he said on X. “We are committed to continuing to work with the United States to save lives and protect communities in both our countries.”
Carney said Canada would continue defending workers and businesses while pursuing talks before the August 1 deadline. The two countries are expected to resume negotiations on June 29, aiming for a deal by July 21 after Canada withdrew its digital services tax on US tech firms to restart trade discussions.
Throughout the current trade negotiations with the United States, the Canadian government has steadfastly defended our workers and businesses. We will continue to do so as we work towards the revised deadline of August 1.
— Mark Carney (@MarkJCarney) July 11, 2025
Canada has made vital progress to stop the scourge…
"We are building Canada strong. The federal government, provinces and territories are making significant progress in building one Canadian economy,” Carney added. “We are poised to build a series of major new projects in the national interest. We are strengthening our trading partnerships throughout the world."
How could this affect housing?
While the direct impact on the housing market may be limited in the short term, economists say a broader economic slowdown could eventually feed into housing demand.
Doug Porter, chief economist at Bank of Montreal, said a "light trade war" might even result in lower interest rates and a temporary housing boost, but warned that more severe tensions would do the opposite.
“What I would be worried about is if the Canadian economy were really wounded badly by a trade war, then that could actually work its way back into the housing market and clip demand as well,” Porter told Canadian Mortgage Professional in a recent interview. “The threat to the housing market would be the indirect effect of a weaker economy.”
The Bank of Canada, which held its rate steady at 2.75% in June, cited global trade uncertainty and inflation concerns in its decision not to move forward with a cut. According to its meeting minutes, “Underlying inflationary pressures could persist for an extended period as consumers and businesses adapt to the rewiring of global trade.”
Economic outlook
The Canadian economy was already showing signs of strain. According to the US Census Bureau, total bilateral goods trade between the US and Canada reached $761.8 billion in 2024, but the US recorded a $62 billion trade deficit. In the first five months of this year, that deficit rose 9.8% year-over-year to $25.6 billion.
Domestically, CIBC deputy chief economist Benjamin Tal said last month that Canada is effectively experiencing zero economic growth.
“We are basically growing at 0% at this point,” Tal noted, blaming trade disruption and the resulting uncertainty from US policy decisions. He projects 1.5% real GDP growth in 2025 and 1.6% in 2026, though stronger recovery is expected in the second half of that period.
Read more: CIBC's Tal talks Canadian economic outlook amid Trump chaos
Canada had responded earlier this year with 25% tariffs on US steel, aluminum, and non-USMCA-compliant vehicles, alongside levies on US goods ranging from food and apparel to tech and construction materials. These measures, Ottawa said, would remain in place until Washington lifts its own duties.
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