Canada: Tariff shock lessons shape policy – RBC

Royal Bank of Canada (RBC) analysts review how Canada has weathered one year of U.S. tariff shocks. They note that Canada’s Gross Domestic Product (GDP) and unemployment held up, but sectoral and regional damage was significant. Analysts stress Canada’s heavy reliance on U.S. trade, uneven provincial impacts, and a growing role for fiscal policy to diversify exports.

Canada adjusts to concentrated tariff damage

“Canada posted its first per-capita gross domestic product increase in three years in 2025, and the unemployment rate moved broadly sideways. Consumer confidence plunged in the spring, but household spending held up and net foreign direct investment was positive for the first time in more than a decade.”

“For all the announcements and noise, economies look remarkably similar overall, but with important distributional changes. The past year also broadly confirmed the world may be resilient to a U.S. trade shock, but Canada is still highly dependent.”

“Ongoing trade turmoil has also underscored other economic vulnerabilities in Canada, including lagging productivity growth that makes economic shocks difficult to handle.”

“However, Canada’s trade relationship with the U.S. is more than a reliance—it’s an orientation requiring new supply chains, and major new infrastructure to rebalance goods trade with other regions.”

“The recent federal budget has the goal of doubling non-U.S. exports by 2035, while supporting infrastructure and easing the way for major projects.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)