CIFFA Forwarder Magazine

10 THE FORWARDER | WINTER 2025 Canadian economic outlook: not great, not terrible The first speaker in the conference program, Alan Arcand set out to examine the Canadian economy by looking beyond our borders. As we are all too well aware, changes to U.S. trade policy – especially the broad and chaotic application of tariffs – have had profound impacts across the globe. Arcand said the U.S. actions have brought about a “total reversal of 150 years of trade liberalization.” Tariffs are reducing trade and economic growth for all countries they touch, including the U.S. As Arcand noted, U.S. consumers now face an overall tariff rate of 17% and manufacturers have cut 42,000 jobs in the last four months. The uncertainty created by rapid shifts in policy has amplified the damage. For Canada, which sends 76% of its total exports to the U.S., CUSMA is an effective shield from the full impact of the tariffs. About 80% of our exports are currently entering the U.S. through CUSMA, with another 10% accessing the market duty-free through other mechanisms. Altogether, about 90% of Canadian exports are entering the U.S. duty-free. The remaining 10%, however, face steep tariffs that are inflicting serious damage on key sectors of our economy. Despite Canada’s low tariff rate, exports to the U.S. in August were down 8% year over year. Job creation in Canada has averaged just 8,900 a month since March, when the trade war began to intensify. Trade-exposed industries have lost 35,000 jobs in that period, more than half of them in manufacturing. The unemployment rate now exceeds 7%. Uncertainty brought about by U.S. economic policy shot up to a record high in April in both the U.S. and Canada. While it has since dropped – remaining in Canada above the rate even during the pandemic – the uncertainty has caused businesses to slow or freeze hiring and postpone capital expenditures. After the government moved last year to curb immigration, Canada’s population growth has seen a dramatic slowdown. Almost 60,000 non-permanent residents left the country between April 1 and July 1. Canada’s near-zero population growth will affect our economic performance, said Arcand. On the positive side, the government’s rollback of most counter tariffs has created space for the Bank of Canada to cut interest rates, offsetting some of the economic damage caused by U.S. tariffs. This, along with an expected increase in federal spending, will likely lead to “slightly stronger” growth in 2026, said Arcand – “provided the carve-outs that keep most exports tariff-free remain in place.” Unfortunately, that’s where Arcand’s good news ended. He noted that, in March 2024, a Bank of Canada deputy governor warned that Canada was facing a “productivity emergency.” That emergency is far from over, he said. Canada’s business-sector labour productivity has declined in 15 of the past 18 quarters, amounting to a cumulative drop of 4.2%. Weak business investment is at the core of our productivity crisis. Business investment has been “largely stagnant” in Canada since 2014. This means Canadian workers are not being equipped with the machinery, equipment and technology they need to raise productivity. Our real GDP per capita has grown more slowly than in any other G7 country over the past decade. Canada’s competitiveness and long-term growth are further hampered, particularly in relation to the U.S., by our much-higher business tax rates and weaker incentives to invest. Economic Outlook with Alan Arcand Chief Economist at Canadian Manufacturers & Exporters (CME).