The Bank of Canada's recent key rate cut comes against an uncertain economic backdrop, marked by trade tensions.

In « Macroeconomic Impacts of a Canada-U.S. Tariff War », researchers Julien Martin, full professor at UQAM, kevin Moran, associate professor at Université Laval and Dalibor Stevanovic, full professor at UQAM, all three CIRANO researchers and fellows, highlight the macroeconomic effects of a tariff war between Canada and the United States using conditional forecasts from a VAR model.

The results show that the imposition of tariffs on Canadian exports to the United States leads to a significant contraction in GDP and employment, with the effects amplified when counter-tariffs are also introduced.

• In total, a tariff escalation could cause a 4.2% fall in GDP, which corresponds to the destruction of around 700,000 jobs in Canada.
• The trade war is a major negative demand shock, putting downward pressure on prices and limiting the inflationary effects of tariffs.

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