Investing.com -- On Thursday, Jefferies released a report assessing the impact of recent US tariff announcements on Canada. The analysis suggests that while the situation remains challenging with existing tariffs in place and global recession risks looming, Canada has fared better than expected following President Donald Trump’s “Liberation Day” declarations.
Jefferies analyst John Aiken highlighted that Canada has avoided some of the more severe consequences of the new “reciprocal” tariffs, particularly those related to the USMCA trade agreement. This outcome was unexpected and more welcome than President Trump’s original 25% tariff plan.
The analyst noted that although tariffs on steel, aluminum, and automotive products are set to proceed, the anticipated direct and secondary inflationary effects of Canadian countermeasures have been mitigated. Aiken stated, “We believe the latest round of U.S. auto tariffs that will be applied against Canada, as well as steel and aluminum tariffs, will be in place for the foreseeable future.”
Aiken specifically emphasized the impact of the auto tariffs, as the industry employs nearly 500,000 workers and manufacturing contributes 10% to Canada’s economy. He maintained that, “Canada is fighting a trade war that it simply cannot win.”
The Canadian dollar strengthened on the news that Canada, alongside Mexico, would be largely exempt from the new tariffs. This has provided a temporary boost to market sentiment. However, the report urges caution, noting that the situation could shift due to the volatility of the Trump administration’s trade policy.
The analyst pointed out that the USMCA trade agreement is up for renegotiation in July 2026, a point both Prime Minister Mark Carney and election rival Pierre Poilievre have emphasized heavily. Aiken agreed that Canada will still need to open negotiations on the trade deal, later adding that, in the context of exports’ effect on GDP, “Canada needs the U.S. more than the U.S. needs Canada.”
Despite the relatively positive news, the broader economic outlook for Canada remains cautious. The analyst believes that ongoing US tariffs and potential retaliatory measures will continue to constrain global economic growth, from which Canada cannot escape. “Canada is not an island and will be negatively impacted by the global headwinds,” he said.
On the consumer side, Aiken does not expect the absence of additional tariffs to significantly change Canadian household spending in the near term.
In terms of monetary policy, Aiken sees the Bank of Canada pausing its interest rate hikes. Given the less dire circumstances and a desire to reserve policy tools should trade tensions worsen, the overnight rate is expected to remain unchanged for now.
The Bank of Canada has cut interest rates twice so far in 2025: 25 basis points in January and 25 basis points in March. The lending rate currently sits at 2.75%, with general expectations that it will be cut to 2.25% by the end of the year.
Finally, the report speculates that if the current trade situation remains stable, it could have political implications for Canada. Should Prime Minister Mark Carney’s prior discussions with President Trump have influenced the favorable outcome for Canada, this could potentially boost the Liberal Party’s standing in upcoming polls ahead of the April 28 election.
Carney has gained considerable support since Trump’s tariff announcements began on January 20. However, with more campaign events ahead, the full impact on the election remains to be seen. As of now, CBC’s Poll Tracker shows the current Prime Minister edging out Conservative Party Leader Pierre Poilievre by nearly 6% of the vote.
Though Canada can breathe a slight sigh of relief, Jefferies cautions that U.S. volatility, the ongoing auto, steel, and aluminum tariffs, and constrained global economic growth could all serve as major headwinds for the country going forward.