Canada Faces Economic Contraction as Exports Plummet Under Tariffs

Canada’s economy experienced a contraction for the first time in over a year, driven by new tariffs imposed by the United States and a decline in global demand. According to a report from Statistics Canada, the country’s real gross domestic product (GDP) fell by nearly 0.4 percent in the second quarter of 2025. This downturn marks a significant shift following six consecutive quarters of economic growth.

The decline in GDP is closely linked to a sharp drop in exports, which decreased by 7.5 percent in the same quarter. The implementation of tariffs on crucial Canadian goods, such as steel, aluminum, and automobiles, has significantly affected trade dynamics. These tariffs, imposed under the guidelines of the Canada-United States-Mexico Agreement (CUSMA), have compounded existing challenges in international markets.

Impact on Manufacturing and Employment

The report highlighted that the current economic slump is the largest quarterly decline since 2009, excluding the period of the COVID-19 pandemic. The repercussions extend beyond just export figures; manufacturing, wholesaling, and employment have also experienced setbacks. Businesses involved in cross-border trade are actively seeking strategies to mitigate the disruptions caused by these tariffs.

In May, 54 percent of manufacturers and 44 percent of wholesalers reported being impacted by the tariffs. The labor market has not seen net employment growth from February to August of this year, with a noticeable deceleration in public sector job creation. The private sector has been particularly vulnerable, experiencing growth rates below two percent for the past 17 months.

A significant portion of the business community has begun to pass on the increased costs resulting from tariffs to consumers. Approximately 33 percent of businesses reported doing so in the last six months, while 40 percent indicated they are likely to follow suit within the next year.

Consumer Goods Prices on the Rise

As tariffs continue to influence the market, consumer goods prices are feeling the pressure. Items such as new cars, clothing, household appliances, and various grocery products have been impacted by both U.S. tariffs and Canada’s countermeasures. This economic environment is causing concern among consumers, who may find themselves facing higher prices in the coming months.

The findings from Statistics Canada not only reflect the current state of the economy but also signal potential long-term effects if trade relations do not improve. As businesses grapple with these challenges, the Canadian economy must navigate a path toward recovery, addressing both domestic and international pressures.