Key Points
- Canadian economic confidence is lower. Donald Trump’s proposed tariffs create uncertainty for Canada’s export-reliant economy.
- Economists estimate tariffs could reduce GDP by 2% to 4%.
- Canada faces minimal fentanyl trafficking compared to Mexico but is increasing border enforcement.
- Bond market signals show long-term pessimism about the economic outlook.
Canadians are increasingly pessimistic about their economic outlook. Threats of US tariffs under Donald Trump’s administration create uncertainty for Canada, one of America’s largest trading partners. The growing pessimism stems from concerns that the new US administration may impose tariffs on Canadian exports, which are crucial for industries such as energy, automobiles, and minerals.
Canada relies heavily on access to the US market as a top crude oil supplier and consumer of American-made goods. Economists warn that tariffs could reduce Canada’s GDP by an estimated 2% to 4%, depending on their scope and Canada’s countermeasures.
Last month, Trump proposed 25% tariffs on all imports from Canada and Mexico, conditional on efforts to curb migration and fentanyl smuggling. While Canada is a relatively minor source of both, with US agents seizing only 50 pounds of fentanyl at the northern border compared to 20,800 pounds at the Mexico-US border in the past year, Canadian officials have announced plans to bolster border policing and monitoring.
Financial markets also signal concerns, as the gap between US and Canadian 10-year benchmark bond yields has widened to levels not seen since the global financial crisis. This spread indicates a dimmer outlook for Canada’s long-term growth and inflation prospects compared to the US.
According to Bloomberg Nanos, the Canadian Confidence Index, which measures sentiment through weekly polling, has dropped to 49.08, the lowest level since November 2023. A reading below 50 reflects net negative views, and the index has been steadily declining since Trump’s election on November 5. Based on weekly surveys of 250 Canadians, the index tracks views on personal finances, job security, the economy, and real estate, with results averaged over four weeks.
