Canada’s Fragile Rebound: Why Tariff Exemptions Could Make or Break Our Recovery

Canada’s economy may finally be on the verge of turning a corner, but let’s not celebrate too soon. Deloitte’s latest economic outlook paints a cautiously optimistic picture: growth of 1.3% in 2025 and 1.7% in 2026. Modest, yes, but importantly, Canada is expected to avoid a recession. For a country that has spent much of the past two years tiptoeing around economic decline, this sounds like good news.

But there’s a catch and it’s a big one. Our recovery depends heavily on something outside our control: maintaining exemptions from U.S. President Donald Trump’s tariffs.

At the moment, most Canadian exports still enjoy tariff-free access to the American market through the Canada-U.S.-Mexico Agreement (CUSMA). In fact, 95% of our goods heading south face little to no additional cost. That’s no small buffer. It has shielded Canada from the worst fallout of Trump’s aggressive trade measures protectionism that has hammered other countries much harder.

The problem is, this protection isn’t guaranteed. If exemptions are rolled back, even slightly, the sectors already feeling the pain steel, aluminum, automobiles will bleed further. And with the U.S. as our largest trading partner, Canada simply cannot afford to be caught in the crossfire of a prolonged tariff war.

This is why I’m skeptical about Deloitte’s rosier outlook. Growth may indeed improve on paper, but it rests on assumptions that are as political as they are economic. We’re betting on the goodwill of a U.S. administration that has made “America First” its rallying cry. That’s a shaky foundation for long-term stability.

Yes, Canada has reasons for cautious optimism. Unemployment, though elevated at 7.1%, isn’t expected to climb much higher. The housing market, after a sluggish year, is showing signs of pent-up demand that could drive activity in 2026. These are important pillars of domestic strength.

Still, none of this can fully offset the risks tied to trade. If our tariff carve-outs hold, we’ll muddle through this period of weak growth and step into a more stable 2026. If they don’t, however, even Deloitte’s carefully hedged forecast could prove far too sunny.

The lesson here is clear: Canada’s economic future isn’t entirely in Canadian hands. Until we diversify our trade relationships and reduce our reliance on the U.S. market, we’ll continue living at the mercy of American politics. That’s not just an economic risk it’s a national vulnerability.