The uncertainty surrounding U.S.-Canada trade relations is making waves across multiple sectors, with economists from Canada’s ‘Big Five’ banks warning of potential economic and housing market repercussions.
Tariff Concerns and Economic Uncertainty
After a month of back-and-forth rhetoric, U.S. President Donald Trump’s 25% tariff on Canadian imports is set to take effect on March 4. Additional tariffs on steel, aluminium, and possibly even lumber are also on the table, leaving many wondering how long this trade turbulence will last.
TD economist Rishi Sondhi highlights that the duration of these tariffs will significantly impact Canada’s economic trajectory. A prolonged trade war into 2026 could drag down growth, while a shorter, six-month disruption might allow the economy to rebound more quickly in 2025. Either way, these tariffs come at a challenging time, just as Canada’s economy had started showing signs of recovery.
Interest Rates: To Cut or Not to Cut?
The uncertainty surrounding trade policies has put pressure on the Bank of Canada’s decision-making. Initially, many economists predicted a rate cut in March to support economic growth. However, stronger-than-expected GDP data has complicated that outlook.
While some economists believe the central bank will hold rates steady at 3%, others argue that if a full-scale trade war erupts, rate cuts will become inevitable to counteract the economic strain. On the other hand, Scotiabank’s Derek Holt warns that retaliatory tariffs from Canada could lead to inflationary pressures, potentially forcing the Bank of Canada to reconsider rate hikes instead of cuts.
Housing Market at Risk
With interest rates in flux and economic uncertainty mounting, Canada’s housing market could face challenges. Scotiabank economist Patrick Perrier initially projected a healthy level of housing activity in 2025, driven by lower mortgage rates and moderate price growth. However, tariff concerns have disrupted that outlook.
According to the Canadian Real Estate Association (CREA), a dip in home sales at the end of January coincided with rising fears of U.S.-imposed tariffs. This uncertainty could continue to weigh on housing demand, making it difficult for potential buyers to commit to purchases.
RBC economists further warn that economic turbulence from tariffs could erode consumer confidence, a key driver of housing market stability. With potential job losses and slower hiring, purchasing power could decline, putting downward pressure on home prices and sales.
Labour Market Implications
A weakening housing market often signals broader economic challenges, particularly in employment. While Canada saw a slight rise in employment in January, the unemployment rate remains nearly 1% higher than it was a year ago. RBC economists note that while tariff uncertainty alone won’t necessarily trigger layoffs, it could slow hiring, as already reflected in declining job postings.
With Statistics Canada’s latest labour market report set for release on March 7, economists from CIBC anticipate further signs of slowing job growth and a rising unemployment rate, adding to concerns about the country’s economic trajectory.
Looking Ahead
While there’s hope that Canada might avoid the most severe tariff measures, uncertainty remains a key challenge. If tariffs are fully implemented, housing market conditions could weaken, hiring could slow, and interest rate decisions could become even more complicated.
For now, all eyes are on how Canada navigates these potential economic headwinds—and whether policymakers can provide stability in an increasingly unpredictable landscape.
