The worst of the Canada-U.S trade war is likely over, say economists at RBC.
Back in July, the BoC struck a cautiously optimistic tone on the impact of frayed U.S. trade links on Canada’s economy. Officials at the time referred to “some resilience so far,” while predicting a sharp drop in exports, which materialized in the second quarter.
RBC senior economist Claire Fan says the situation appears to be improving for Canada.
“There are reasons to expect the worst of the drag from trade is likely behind us,” she wrote in a research report last week. “We look for the economy to recover in Q3 as trade balance improves, and gross domestic product growth to become positive after contracting from weak net trade and business investment.”
RBC says damage from the trade war has been largely confined to the manufacturing, transport and warehousing sectors, which have accounted for the bulk of job losses since Spring.
According to U.S. Census Bureau data, 88 per cent of U.S. imports from Canada in July were duty free, thanks to the CUSMA (Canada-United States-Mexico Agreement) exemption. A joint review of CUSMA is set to begin in 2026 or earlier. However, the agreement does not expire until 2036.
“With CUSMA exemptions largely expected to hold, we cautiously expect trade headwinds will have limited further direct impact on the Canadian economy,” Fan wrote. “The fact that the U.S. and Canada have worked to preserve CUSMA so far is a good sign.”