Update from February. 3, 2025 to 4:59 p.m. Eastern: Prime Minister Justin Trudeau says that the American prices on Canada will be “interrupted” for 30 days. Learn more about the announcement here.
US President Donald TrumpCanada’s prices and Canada’s reprisal measures could be the “most important commercial shock” that Canada has suffered in almost 100 years, economists.
So does that mean that a recession is inevitable?
A report by the Royal Bank of Canada compared the commercial shocks of Trump prices to those caused by Smoot-Hawley prices of the 1930s.
The 1930 prices law, which created what is called Smoot-Hawley prices, was an American law that raised American rates on a range of radical products exported to the United States.
The prices would have aggravated the recession during the Great Depression.
“This shock far exceeds the 2018 prices in amplitude, reducing the value of this period as a useful guide for the upcoming economic impact,” said RBC chief economist, Frances Donald and the deputy chief economist Nathan Janzen in a new report.
“For the context, in 2018, the average American import rate increased from 1.5% to around 3%. Under the new policy, the average American rate rate (increased to almost 11%, the highest average ratio since the 1940s. ”
Could Canada avoid a recession?
Economists generally define a recession as two consecutive quarters of an economy that contracts.
The RBC report said Canada could avoid a full -fledged recession if the prices are in place for a few weeks.
“Prices deleted in a few weeks are likely to create a temporary stand for Canada. However, if they extend over a few months (for example 3 to 6 months), the risk of recession in Canada increases rapidly, “said the report.
You Nguyen, economist at RSM Canada, said that the American prices supported and a response from Canada could probably see the Canadian economy contract by 2% – a net contrast with the planned growth rate of 1.8% for 2025 .
Get daily national news
Get the best news of the day, the titles of political, economic and current affairs, delivered in your reception box once a day.
She said Canada could go to a recession, including job losses and inflation.
“(Prices and counter-taar) would also make the inflation of the two percent percent of 2.7%, because some of the increased costs of prices are transmitted to Canadian consumers,” she said .
The RBC report said that sustained prices would mean that Canada could take up to three years to recover from the effects of a recession.
“If it is supported, our initial analysis suggests that prices of this size (on the basis of many hypotheses) could destroy Canadian growth up to three years, with the most important impacts in the first and second years”, indicates the report.
The RBC report agreed with the conclusions of the Bank of Canada that a price of 25% applied in all areas would reduce Canadian GDP from 3.4 to 4.2%.
Canadian manufacturing to take a hit
Nguyen said Canada will likely see a lower demand for “all goods and services such as new cars, restaurants and entertainment”.
The United States, Canada and Mexico will be particularly affected, she said, losing against competitors in Europe and Asia.
“The scenario in which economic damage is minimized is that in which a trade agreement is negotiated, ending the prices. The longest prices and reprisals have continued, the more the economies of the three countries are fractured and not competitive – the more economic pain consumers feel higher prices, less available goods and less jobs, ” she said.
According to RBC, Canada’s manufacturing sector represents nine percent of total GDP and 70% of total trade with the United States
“The manufacturing sector of Canada is the most exposed, but the training effects will also have an importance in many other indirectly exposed industries,” said the report.
The industry that could be the hardest affected is the automotive manufacturing sector and in addition to slower job losses and economic growth, Canadians could cope with higher prices.
“The prices of perishable goods such as fruits and vegetables should jump from the coming week, since they cannot be stored in advance. Although the price of goods such as household appliances and cars take longer to increase, they will inevitably increase, “said Nguyen.
The RBC report said the US economy would also feel the pain in Trump’s new policy.
American manufacturing companies are likely to slow down and American consumers are likely to feel the burden of their wallets.
“While the American economy starts from a relative place of force (and depends much less on trade), it is faced with a shock large enough to adjust most of the forecasts downwards on growth and the rise in the inflation. Additional reprisal policies in Canada and / or Mexico will probably exacerbate these impacts, “added the report.
Do you change your spending habits, either to buy the Canadian or try to save more in the event of a hard-to-come economical time? Send us an email to shareyoursstory@globalnews.ca on how your expenses change due to the prices, and we could be in contact for future stories.
& Copy 2025 Global News, A Division of Corus Entertainment Inc.