Why you shouldn’t worry about the trade war

RBC Economics says Canada’s growth outlook has not changed despite new U.S. tariffs, Canadian support measures and counter-tariffs, but risks have shifted to the downside.

In an Aug. 27 report, RBC said it remains cautiously optimistic about near-term Canadian growth, though recent trade measures have reduced some of the momentum building in the economy.

RBC said current U.S. tariffs affect about 5% of Canadian exports to the United States and about 0.4% of Canadian GDP and jobs. Canada’s retaliatory tariffs cover about 3% of imports.

The bank said a $7.5-billion federal support package for affected workers and businesses should help limit immediate job losses and contain broader economic spillover.

RBC said inflation will be affected, but not significantly unless the trade war escalates. It expects the Bank of Canada to remain on hold for the rest of 2026 as lower inflation readings, firmer backward-looking growth data and higher trade risks balance each other out.

The auto sector remains a key risk. RBC said 120,000 jobs still depend directly on vehicle and parts production, but broad auto tariffs would also hurt U.S. exporters because more than half the value of Canadian vehicle exports to the U.S. comes from imported U.S. parts.

Canada has some room to offset lost U.S. demand through domestic substitution, though the shift would likely be gradual and partial, RBC said. About 80% of Canadian exports targeted by Section 338 tariffs went to the U.S. in 2025.

BRC also pointed to a “Buy Canadian” shift, particularly in tourism. RBC said overnight trips by Canadians to the U.S. have been running 25% below 2024 levels since trade tensions increased in early 2025.

Regionally, Quebec, British Columbia and Ontario are more exposed to new Section 338 tariffs, with plastic products, electrical machinery, furniture and wood products among the most affected sectors.

RBC said its U.S. outlook is also unchanged, with baseline growth of 2% in 2026 and 2027, though new tariffs threaten recent improvements in goods inflation and trade-related employment.

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