If you're feeling whiplash from all the headlines about the U.S. slapping tariffs on imports again, you're not alone. But for Canada, the story is a little different—and a lot less dramatic.
RBC economists Nathan Janzen and Claire Fan say the latest hike in U.S. tariffs—bumping certain rates from 25% to 35% under the IEEPA—won’t upend Canada’s outlook. “Tariffs on Canadian goods announced by the U.S. on July 31 do not significantly alter Canada’s economic outlook,” they write1.
Why? Because most Canadian exports still cruise past the tollbooth thanks to CUSMA. “That exemption is maintaining duty free access to the U.S. market for the majority of Canadian exports by our calculations, and remains in place.”
In a protectionist world, that’s not nothing.
Canada’s Free Trade Lifeline Still Intact
While other countries are feeling the sting of steeper duties, Canada’s in a uniquely good spot. “Canada should maintain among the lowest (if not the lowest) effective tariff rate of any major U.S. trade partner under the updated rules,” Janzen and Fan note. Translation: CUSMA’s still doing its job.
That said, they aren’t exactly kicking back. “Overnight tariffs hikes on other countries will still push the effective U.S. tariff rate higher to the top end of the 10–15% range that we have been assuming for our base case outlook.” So, while we’re not in the crosshairs, the global backdrop is definitely heating up.
Bottom line: it could have been worse. “This outcome, while impactful, remains less severe than the more negative scenarios that appeared more possible earlier this year.”
Labour Market: Not Booming, Not Busting
After June’s surprise surge in jobs—83,100 gained in one month—it’d be easy to think the labour market is making a comeback. Not quite, say the RBC economists. “One upside surprise in employment doesn’t negate months of prior softening,” they cautioned. “The 6.9% unemployment rate in June was still up half a percent from a year ago, and is historically elevated.”
What’s really going on? A tale of two sectors. Manufacturing and other goods-producing industries have been losing ground—thanks in part to international trade headwinds. But the services side of the economy? It’s doing the heavy lifting. “Services sectors have been broadly resilient, accounting for nearly all of the job growth in Canada since last summer.”
Their outlook for July? Modest job gains, but expect the unemployment rate to edge up to 7%. “We believe deterioration in the labour market is likely approaching a bottom if it hasn’t already.” That is—so long as trade tensions don’t flare up again. “That outlook is contingent on the assumption of limited additional erosion in trade relations between Canada and the U.S.”
Exports Look Up—But Only Thanks to Oil
Expect Canada’s June export numbers to show a small uptick, but don’t break out the champagne. It’s all about oil. “June’s international trade data on Tuesday is expected to show Canadian exports ticked higher, but only due to a 10% jump in oil prices,” Janzen and Fan explain.
Dig deeper, and it’s not as pretty. “Export volumes likely declined again after accounting for the price changes, consistent with another significant drop in U.S. imports.” So yes, dollar values are up—but real trade flow is still struggling.
Still, Canada’s exporters aren’t feeling the tariff pain like some others. “We expect those exports were still subject to lower average U.S. tariffs compared to exports from other major U.S. trade partners.”
What to Watch This Week
In Canada, expect a smaller trade deficit for June—around $4.9 billion—mainly due to those higher oil prices. On the flip side, fewer motor vehicles rolling off production lines likely kept imports in check.
Over in the U.S., RBC expects the trade deficit to land around $60.7 billion. A 10.8% narrowing in the goods trade deficit is expected, but both exports and imports still declined—by 0.6% and 4.2%, respectively.
The Big Picture: Steady as She Goes
RBC’s message this week is refreshingly grounded: Canada’s economy isn’t overheating, but it’s holding together. “We expect growth in the economy will stay soft, but positive,” they concluded, “and the Bank of Canada is not expected to cut interest rates again.”
All things considered? That’s not a bad place to be.
Key Takeaways for Advisors and Investors
- Trade Advantage: Canada’s CUSMA protections are keeping most exports clear of new U.S. tariffs.
- Jobs Reality: Despite June’s big gain, the labour market remains fragile—though stabilization may be near.
- Export Caution: Oil is boosting export values, but volume weakness tells a slower-growth story.
- Rates on Hold: With economic conditions steady, RBC sees no further rate cuts from the Bank of Canada.
Footnote:
1 RBC Economics. Nathan Janzen. Claire Fan. “CUSMA exemption holds up despite latest U.S. tariff hike; Canada’s jobs to show stabilization" RBC, 1 Aug. 2025. ↩︎
