Economists warn that unresolved trade disputes could weaken growth for years
Canada’s economy is expected to face extended uncertainty due to the threat of high tariffs on exports to the United States, even as US president Donald Trump temporarily pauses his plan for a 25% tariff on Canadian goods.
Economists warn that ongoing negotiations could leave businesses operating under the shadow of potential trade penalties for the foreseeable future.
According to Stephen Brown, deputy chief North America economist at Capital Economics, “rolling tariff threats” will likely weigh on business investment in Canada, even if they are never fully implemented.
Trump has made it clear that he is seeking a broader economic agreement with Canada, but reaching a deal within his imposed 30-day deadline appears unlikely, given the political landscape in Canada. With Prime Minister Justin Trudeau on his way out and the possibility of an early election this spring, the conditions for trade negotiations remain volatile.
“If he is looking for wholesale changes to the economic relationship between Canada and the US that might result in a narrowing of [the trade] deficit, then it is very unlikely that a deal can be achieved in the next 30 days given the current political climate,” Brown told the Financial Post.
The alternative scenario is equally troubling for Canada. If Trump is pushing for an early review of the USMCA trade agreement, originally scheduled for 2026, negotiations could stretch over a full year. The last round of NAFTA renegotiations during Trump’s first term took that long, and a similar timeline could mean a prolonged period of economic uncertainty.
“So even if the review started very soon – which, again, seems extremely unlikely – a relatively positive outcome for Canada might still be a full year during which the threat of 25% tariffs is hanging over the economy,” Brown said.
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As a result, Capital Economics has revised its growth outlook for Canada, cutting its forecast for 2025 GDP growth to 1.5% from 1.8%.
“For now, we will keep our forecast for 2026 at 1.5%, but both our 2025 and 2026 forecasts will be cut substantially if the US eventually imposes 25% tariffs,” said Brown.
In contrast to the NAFTA renegotiations in 2017-2018, when business investment remained stable despite trade disputes, this time, the stakes are significantly higher.
Even if tariffs are avoided in the short term, the lingering threat of trade disruptions could have a lasting impact on Canada’s economy. The uncertainty surrounding future negotiations and the risk of a tariff war could discourage investment and weaken economic growth for years to come.
“The alternative this time, of 25% tariffs, is far more severe,” said Brown.
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