U.S. President Donald Trump’s broad-based, sweeping tariffs could cause significant economic damage to Canada, but his own economy will take a hit as well, a new report by the Royal Bank of Canada has said.
Economists have warned that if Trump’s tariffs remain in place for a sustained period of time, Canada could slip into a recession over the next six months. Economists generally define a recession as two consecutive quarters of an economy contracting.
The RBC report said that while a full recession in the U.S. is unlikely, it could see an economic slowdown. This is because Canada, Mexico and China — the three countries targeted by Trump in his fentanyl and border-related tariffs — account for 40 per cent of all U.S. trade.
“We are not expecting the impact of tariffs to cause a recession in the U.S. However, if tariffs are left in place for three months or more, we will likely see no growth for the U.S. economy in 2025,” the report by RBC economists Mike Reid and Carrie Freestone said.
The report said the entire North American manufacturing sector could face significant risks.
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“The auto manufacturing sector is, particularly, exposed. U.S. intermediate products account for a significant share of imported goods from Canada and Mexico as it crosses the border through multiple stages of auto production,” the report said.
It added that America’s agriculture sector, too, would take a hit.
“Canada, Mexico, and China account for roughly half of U.S. agricultural imports. China accounts for close to $100 billion of U.S. non-durable imports including chemicals, pharmaceuticals, paper products, and textiles,” the RBC report said.
The tariffs are also likely to raise prices significantly for American consumers, with inflation projected to soar past the three per cent mark by the end of 2025.
“Tariffs will impact all U.S. consumers, but the burden will be heavier for low-and-middle-income earners, who devote a greater share of their take-home pay to purchasing essentials,” the report said.
The RBC report said the U.S. will have a tough time finding alternatives to imports from the three countries being hit with tariffs.
It said, “Canada, Mexico, and China account for 60% of aluminum, lumber, and energy product imports. Energy infrastructure takes years to develop, and the U.S. is highly dependent on Canada for electricity imports (specifically in the Northeast) in addition to crude oil due to geographic proximity.”
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