Residential Market Commentary - Tariffs trigger economic unease

  • First National Financial LP

The Canadian economy is facing a permanent “negative structural change” if threatened U.S. tariffs become a long-term reality. 

Bank of Canada Governor Tiff Macklem issued the warning during a recent speech to business groups in Mississauga.  He also cautioned that an all-out trade war with the Americans would put the central bank in the position of fighting contradictory problems with the one, main weapon it has: interest rate (monetary) policy. 

The Bank would be left trying to limit tariff-fuelled inflation by keeping interest rates high while, at the same time, trying to stimulate economic growth, which is usually done by lowering interest rates.

The BoC estimates that sweeping, 25% U.S. tariffs on Canadian goods could leave Canada in a serious recession with virtually zero economic growth over the next two years.

While Canada’s exports – mainly energy, autos, aluminium and steel – would take major hits, new home construction here would also suffer significant shocks.

Retaliatory Canadian tariffs on everything from appliances to plumbing fixtures to plastic building materials would drive up prices for builders and those costs would be passed on to buyers.  This would also be the case for the home improvement and renovation sector in the resale home market.

Broad economic uncertainty created by tariff threats, and the resulting fears about jobs, inflation and interest rates could have wide ranging negative impacts on the housing industry, which relies on confidence and stability to generate market activity.

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