If Donald Trump returns to the White House and follows through on his threats of sweeping tariffs, Canada’s economy could be in serious trouble. And according to Bank of Canada Governor Tiff Macklem, the damage wouldn’t just be a temporary setback—it would be permanent.
Speaking to business leaders in Mississauga and Oakville, Rahman made it clear that this kind of economic hit would be nothing like the COVID-19 downturn, where businesses shut down and then bounced back once restrictions lifted. This time, there wouldn’t be a rebound.
Think about it—if the U.S. slaps tariffs on a broad range of Canadian goods, our exports will immediately become more expensive, leading to reduced demand. Canadian businesses that rely on American customers would be forced to cut production, lay off workers, and scale back investment. Macklem estimates an 8.5% drop in Canadian exports in just the first year. That’s not just a dip; that’s a gut punch.
And let’s not forget, trade with the U.S. is a cornerstone of our economy, making up about a quarter of our national income. A hit of this magnitude would ripple across the country, affecting everyone from factory workers to small business owners to consumers. It’s not just exporters that will feel the pain—households will see their incomes drop, which means less spending on everything from housing to entertainment to big-ticket items like cars. Macklem projects a 2.5% decline in consumer spending by mid-2027. That’s a recession-level contraction.
Meanwhile, Canada’s response would have its own consequences. Retaliatory tariffs on U.S. goods would push inflation higher, making life even more expensive for Canadians already grappling with high costs of living. So, while we might want to fight fire with fire, we could end up burning ourselves in the process.
So, what’s the way forward? Macklem points to internal reforms that could soften the blow. He suggests removing outdated interprovincial trade barriers and harmonizing provincial regulations. Right now, Canada makes it unnecessarily difficult to do business across its own provinces. Fixing that could help boost productivity and create a more resilient economy. Another key move? Making it easier for workers to relocate within Canada by recognizing different provincial accreditations. If businesses have to shift operations due to tariffs, workers should be able to follow the jobs without jumping through bureaucratic hoops.
The bottom line? Canada needs to prepare for the possibility of a more protectionist U.S. government that won’t hesitate to impose tariffs, even on its closest trading partners. If Trump pulls the trigger, the fallout won’t just be a temporary storm—it’ll be a long-term restructuring of our economy. And if we don’t act now, we’ll be left scrambling to pick up the pieces when it’s already too late.
