While the effects of the U.S. tariffs on Canada’s economy depend on how long the trade war lasts—and whether it escalates—comparisons with past recessions can give an idea of how bad things could get for Canadians.
A Scotiabank report indicates that, at 25 percent tariffs, Canada’s GDP could be as much as 5.6 percent lower in the first quarter of 2027 with full retaliation, 4.7 percent lower with half retaliation, and 3.8 percent with no retaliation.
For comparison, during the COVID-19 pandemic, Canada’s GDP saw an annual decline of 5.4 percent in 2020, and during the 2008–2009 recession, the country’s GDP fell by 3.3 percent over three quarters, according to Statistics Canada.
“After that, you would have to go back to 1930 to 1933, the Great Depression, which saw four consecutive years of real GDP decline,” Livio Di Matteo, an economics professor at Lakehead University, said in an interview.
The same day the United States put 10 percent tariffs on Canadian energy and 25 percent tariffs on all other Canadian products, Ottawa retaliated with 25 percent tariffs on $30 billion worth of U.S. goods, with another $125 billion of imports to be tariffed after 21 days. Ottawa has said that revenue generated through tariffs will be used to support Canadians.
Former Parliamentary Budget Officer Kevin Page told The Epoch Times that it will be challenging for the government to design and scale a support package for Canadians in the trade war similar to those during the COVID-19 and 2008 recessions. He also said there is one potential “wild card,” which is the possibility of the trade war escalating.
U.S. President Donald Trump said on March 4 that if Canada responded with retaliatory tariffs, America’s tariffs would “immediately increase by a like amount,” as per his previously signed executive order.
Besides the first round of tariffs Trump has imposed on Canada, he is also introducing separate 25 percent tariffs on aluminum and steel starting on March 12, and has ordered his officials to review existing trade agreements and propose reciprocal tariffs by April 2.
While the United States announced on March 5 that the big three automakers—Ford, Stellantis, and General Motors—along with any cars from Canada and Mexico that comply with the USMCA trade deal would get a one-month exemption on tariffs, uncertainty remains about what other exemptions might be introduced and how long they will last.
COVID-19 Pandemic, 2008 Recession
Canada experienced a major shock to its economy not too long ago, albeit with a relatively quick recovery, when the COVID-19 pandemic first hit in 2020.The country’s GDP shrank by 5.4 percent that year, the sharpest annual drop since Statistics Canada first began tracking the data in 1961, but GDP recovered and grew by 4.6 percent in 2021.
The country’s unemployment rate hit 13.7 percent in May, the highest since comparable data became available in 1976, but by September 2021 employment levels had recovered to pre-pandemic numbers.
The pandemic led to weaker economy-wide demand and average inflation cratering to just 0.7 percent in 2020. But a resumption in demand, disrupted supply chains, and higher energy prices caused inflation to rise to 8.1 percent by June 2022. The Bank of Canada responded by dramatically raising interest rates, which eventually brought inflation back down to 2 percent in August 2024.
During the Great Recession of 2008, Canada’s GDP fell by 3.3 percent over the three quarters from the third quarter of 2008 to the second quarter of 2009. While the country’s GDP contracted 2.6 percent for the year 2009, it rebounded 3.3 percent in 2010.
That period saw Canada’s inflation rate rise to 3.5 percent in August 2008, before steadily declining to -0.9 percent in July 2009, before recovering to the Bank of Canada’s benchmark of 2 percent by 2010.
Additionally, the early 1980s recession saw Canada’s GDP drop by 2.9 percent and the unemployment rate rise to 11 percent in 1982. The 1990s recession, meanwhile, saw GDP decline by 2.1 percent and unemployment rise to 10.3 percent n 1991.
John Ries, a professor at U.B.C.’s Sauder School of Business, said the COVID-19 and 2008 recessions were accompanied by a rapid stock market decline, while Trump’s tariffs are unlikely to lead to a similar scenario.
“The timing is a bit different. It’s not a crash—it’s tariffs without the market crash,” he told The Epoch Times.
Ries also said he doesn’t anticipate major industries, such as the automotive sector, going bankrupt.
Ian Lee, a business professor at Carleton University, said that unlike past recessions—which were primarily driven by cyclical economic patterns where demand eventually rebounded—a recession triggered by Trump’s tariffs could follow a different trajectory.
“To the extent that the tariffs remain, it’s going to become permanent, and it involves a reduction in our national income that doesn’t pop back unless and until we reach an agreement to rescind,” he said in an interview.
Great Depression
While it may be alarmist to contrast Canada’s current economic woes to those of the Great Depression from 1929 to 1939, there are some parallels, particularly as they relate to tariffs.The Great Depression was triggered by the stock market crash of October 1929, but it was also caused by a drop in world commodity prices, economic demand, and credit. Canada saw its GDP fall by more than 40 percent by 1933, while the unemployment rate remained above 12 percent until the start of World War II in 1939, and one in five Canadians relied on government relief to survive.
However, the Great Depression was exacerbated by the U.S. Smoot-Hawley Tariff Act. Signed by President Herbert Hoover in 1930, the act raised tariffs on over 20,000 imported goods to rates averaging between 40 percent and 60 percent, and led to reduced global trade once other countries responded with retaliatory tariffs.
Canada responded by slapping its own tariffs on the United States and seeking closer trade with Britain and the rest of the Commonwealth countries. Although Canada signed free-trade agreements with these countries, it was still harmed by the American tariffs. It later began trade negotiations with the new U.S. administration in 1933.
Growth, Inflation, and Employment
The Scotiabank report, published last November, said that the 25 percent tariffs against Canada, with counter-tariffs of the same amount, would lead to inflation rising by 4.1 percent in the third quarter of 2025 and the unemployment rate rising by 3 percent in the fourth quarter of 2025. It would also force the Bank of Canada to raise the policy interest rate by 280 basis points by the third quarter of 2025, hiking it from the current 3 percent to 5.8 percent.A CIBC report from February had similar predictions for economic decline, saying the U.S. tariffs could reduce Canada’s GDP by 5 percent. But the report had a rosier outlook for inflation, saying it could rise above the Bank of Canada’s 2 percent target initially but fade soon after due to lower economy-wide demand.
In its January monetary policy report, the central bank released its own “illustrative tariff scenario“ that came to less damaging conclusions. It outlines what would happen if the United States imposed permanent 25 percent tariffs on all goods it imports while all other countries responded in kind. It also assumes the pass-through of tariffs to prices increases gradually over time, businesses absorb part of the cost increase, and half of the tariff revenue Ottawa receives is transferred back to Canadian households while the other half is used to pay down debt.
In this scenario, Canada’s overall trade balance worsens, the Canadian dollar depreciates, Canadian business investment declines significantly, Canadian exporters lower production and lay off workers amid lower demand for goods, and the rest of the economy is affected. The result is a permanent GDP decline over time. Inflation will also generally rise.
The bank thus projected that Canada’s average GDP growth in the first year would be nearly 2.5 percentage points lower than it would otherwise be, and 1.5 percentage points lower in the second year, before roughly returning to normal by the third year. Inflation in Canada would rise by 0.1 percentage points in the first year of tariffs, 0.5 percentage points in the second year, and 1 percentage point in the third.
When it comes to the number of Canadian jobs that the tariffs could endanger, Immigration Minister Marc Miller said 1 million jobs are “at risk,” while Ontario Premier Doug Ford has said 500,000 jobs in his province alone could be lost.
While Lee believes Canada will see a “worse” economic downturn than it did in either 2020 or 2008, he said Ottawa can potentially avoid it by renegotiating the USMCA trade deal to open up protected industries around banking, telecom, and dairy products.
“The way to get out is not more and more tariffs. That’s what happened in the Depression,” Lee said, adding that this led to a trade war and a “downward death spiral.”
“I do not believe that’s where it’s going to end up. I believe there is an exit ramp, and that is at the negotiating table.”
