Canadian Businesses Struggling Amid US Tariff Uncertainty: Bank of Canada

Canadian companies are hesitant to grow investments or increase hiring due to concerns about U.S. tariffs and global economic uncertainty, a new survey from the Bank of Canada (BoC) suggests.

The most recent quarterly business outlook survey conducted by the bank between Aug. 7 and Sept. 3, and released Oct. 20, found that business confidence and hiring across the country remains subdued due to the ongoing trade dispute with the United States. This includes a growing proportion of surveyed firms that are bracing for a potential recession.

“The share of firms planning for a recession in Canada—for example, by tightening their budgets or pausing investments—has increased slightly, from 28 percent to 33 percent [since last quarter],” the BoC notes in its report on the survey. “This share remains above the low levels seen in 2024, likely reflecting ongoing concerns about the impacts of trade tensions.”

U.S. President Donald Trump placed a 35 percent tariff on all Canadian products not included in the United States-Mexico-Canada Agreement (USMCA) on Aug. 1, and has also hit the country with higher sectoral tariffs on steel, aluminum, copper, softwood lumber, and autos. Canada’s Liberal government says 85 percent of Canada-U.S. trade remains tariff-free under the USMCA.

Additional trade tensions include China’s 100 percent duties on Canadian canola oil, oil cakes, and peas this past March in response to a 100 percent levy Canada placed on Chinese electric vehicles (EVs) in August 2024. Beijing also applied duties up to 75.8 percent on Canadian canola seed imports in August.

The bank said many firms have chosen to refrain from further investment in operations or from expanding their workforce, attributing this decision to economic uncertainty, cost pressures, and declining demand, with taxes and regulations emerging as the next three significant concerns.

The survey also found that many companies are allocating more funds to maintenance rather than increasing the size of their business, despite most companies who export products saying their goods are still being traded tariff-free to the United States. However, Canadian aluminum and steel companies facing sectoral tariffs of 50 percent have serious doubts that growing overseas markets such as Europe will counterbalance lost profits from previous volumes exported to south of the border.

Meanwhile, businesses reported higher consumer spending patterns compared to dramatic lows near the beginning of the year, driven by overall decreases in gas prices, a lower interest rate, and demand driven by “Buy Canadian” consumer sentiment. The survey also found that most households also feel their financial situation has improved since last quarter.

The central bank cut the interest rate from 2.75 to 2.5 percent in mid-September amid weakening economic growth and the removal of roughly $30 billion in Canadian counter-tariffs on the United States, reducing the chance of an overall increase in Canadian consumer prices.

“The economy was weaker and, while there were still some mixed signals, inflationary pressures appeared more contained,” the BoC governing council said.

The BoC noted that exports fell by 27 percent in the second quarter of this year due to the impact of trade uncertainty, with many Canadian businesses adopting a “wait-and-see mode” to see how tariffs might affect trade and consumer spending going forward.

The Canadian Press and Chandra Philip contributed to this report.