Even amidst a tumultuous year, Canada has managed to keep its head above water, economically speaking. Despite a not-so-rosy initial prognosis, the economic situation hasn’t devolved into a complete crisis. This observation is remarkable considering most were bracing themselves for the worst at the start of the year. The re-election of Donald Trump, with an apparent axe to grind against Canada, exacerbated the pessimistic outlook.
President Trump’s return to office fueled speculations about a comprehensive economic assault on Canada. Justin Trudeau, the former Prime Minister, conjectured in March that Trump harbored intentions to dismantle the Canadian economy. This sufficed to raise the nation’s defenses, inviting both a furious resolve to restructure our economy and a lingering dread of an inevitable financial descent.
Yet, the full impact of the imposed tariffs hasn’t surfaced entirely. Analysts predict the complete fallout to make an appearance later in the year. Furthermore, the unpredictable nature of Mr. Trump’s decisions always poses a risk. However, it is surprising to note that despite these factors, the Canadian stock market boasted record numbers by Canada Day.
The stock market’s performance was not the only unexpectedly positive outcome. Other indicators like consistent economic growth, a steady job market, and uninterrupted consumer spending were equally promising. A recent study encapsulated this unexpected resilience in its findings: while acknowledging the challenging economic trajectory ahead, it attributed far less peril to it compared to a few months earlier.
A closer look at these findings reveals more potential positives. The Canadian capital markets have remained active and vibrant, with investors confidently backing corporate expansion plans with significant funding. Even the export figures for May showed a recovery rebound after a steep decline in April due to tariff threats.
Trade with countries other than the U.S. is also witnessing an upward trend. There are already signs of diversification with Canadian exports being less U.S.-focused than in the previous year. Moreover, inflation appears to be under control, affording policy makers enough room to implement stimulating measures for the economy as needed.
It is premature, however, to conclude that our economy is unsusceptible to tariff-induced damage. A universal tariff of 25 percent on all Canadian products listed for U.S. trade, as Mr. Trump vowed to impose at the start of his second term, would have been devastating. Fortunately, the tariffs faced by Canadian exporters are far lighter, around one-tenth of the estimations.
In April, U.S. tariff rates on Canadian goods averaged 2.3 percent, as mentioned in a report. This figure represents a considerable rise from the previous year when it was virtually zero. However, it remains the lowest rate confronted by any of the U.S.’s major trading alliances.
Since March, exports that comply with the Canada-United States-Mexico Agreement (CUSMA) have been free of tariffs. This trade deal, signed by Mr. Trump in 2020, seems to act as a protective shield against today’s tariff impositions. There are exceptions, though. Steel and aluminum tariffs, dubious ‘national security’ charges leveled by Mr. Trump, persist.
The automobile industry also faces mild hits, with tariffs on non-U.S. components of finished automobiles. But sectors such as oil and gas, wood products, and precious metals, among others, enjoy non-tariff cross-border trades. Further, diversification seems to be gradually progressing, with more Canadian goods directed to markets other than the U.S.
Exports to the U.S. in May accounted for 68 percent of total exports, a decrease from 76 percent in the previous year. While the contribution of gold has been significant in this shift, economists caution against reading too much into this upsurge. The surge in gold prices this year may be distorting the trade data, making it look more favorable than it actually is.
Disaster scenarios that were envisioned a few months ago have not materialized. As stated in one report, the trading shock for Canada appears smaller than anticipated. This sentiment echoes in several recent indicators: The Gross Domestic Product (GDP) experienced a slight contraction of 0.1 percent in April.
While sectors such as manufacturing and transportation, which were directly in the tariff line of fire, have taken a hard hit, other areas of the economy have shown relative resilience. Consumer metrics have bucked the downtrend observed in household sentiment data, with retail spending experiencing a 0.3 percent increase in April.
Although the unemployment rate has nudged up to 7 percent, hiring conditions seem to have found a stable footing, with the creation of 8,800 jobs in May. Meanwhile, the S&P/TSX Composite Index has grown by 9.3 percent during the year to date. A financing boom in June witnessed over $3.5 billion in equity sales, more than the total of the first five months combined.
Despite the resilience shown so far, Canada continues to grapple with profound structural issues and a potential rupture in the economic status quo. As we cross the mid-year mark, it’s evident that the country’s economy, in spite of the odds, continues its fight.