New US forced-labour duties target Canada and the implications for mortgage rates could be significant
A new round of proposed United States trade measures threatens to add fresh uncertainty to Canada's mortgage market, with the Trump administration announcing plans to impose a 10% tariff on Canadian exports over allegations the country has not done enough to prohibit goods made with forced labour.
The announcement, made by US Trade representative Jamieson Greer on Monday, follows a Section 301 investigation launched in March into whether 60 trading partners, including Canada, the European Union, the United Kingdom, and Japan, are effectively enforcing bans on the import of goods produced with forced labour.
Canada was among a group that the USTR found has "failed to effectively enforce a forced labour import prohibition."
The proposed duties have not yet taken effect and must still clear a formal public comment and hearing process, with written submissions due July 6 and hearings set for July 7.
Prime minister Mark Carney called the measures "not a surprise," noting that nearly 90% of Canadian exports to the US would remain exempt under the rules of origin established by the Canada-United States-Mexico Agreement (CUSMA).
Still, for brokers and lenders navigating an already fragile market, even targeted tariffs carry real consequences.
What this means for mortgage rates
Tariffs increase the cost of imported materials and intermediate goods used in Canadian production, translating into stronger inflationary pressures. This can make the Bank of Canada more reluctant to cut its policy rate.
At the same time, tariffs on Canadian exports raise costs and slow demand for Canadian producers, weakening business investment, exports, and overall economic growth.
The Bank of Canada has held its overnight rate at 2.25% since October 2025, pausing a rate-cutting cycle that delivered 275 basis points of relief since mid-2024.
With inflation still present and domestic growth soft, policymakers have signalled limited appetite to move further and economists at BMO now warn a rate cut may not arrive in 2026 or even 2027.
The concern for brokers is that additional trade uncertainty could tighten bond market conditions without the central bank needing to move at all.
Tracy Valko, founder of Valko Financial, previously told Canadian Mortgage Professional that "with US tariff risks and global economic pressures, mortgage rates may remain volatile."
The chilling effect on housing demand and buyers
The more immediate risk may be to buyer sentiment rather than to rates directly. The Bank of Canada has already flagged a condo surplus as a new drag on broader economic growth.
Canada Mortgage and Housing Corporation (CMHC) projected real GDP expansion of just 0.7% in 2026, among the weakest non-recessionary years on record, weighed down by trade tensions, a softening labour market, and near-zero population growth.
BMO senior economist Sal Guatieri warned in April 2026 that the cumulative weight of trade uncertainty would likely keep many buyers waiting. "Unfortunately, it's the economic uncertainty — both related to the trade war and the Iran war — that will likely keep a lot of buyers, especially first-time buyers, on the sidelines," he told CMP.
Moreover, higher building costs due to tariffs are already impacting the pace of new builds forecast for 2026, with less access to supplies as trade routes are affected by US measures. This constrains new housing supply at the very moment demand is being suppressed by economic anxiety.
The CUSMA wildcard
A critical near-term risk that many brokers may not be tracking: the CUSMA joint review deadline is July 2026, and significant changes could affect how tariffs feed through to Canadian inflation.
Canada has weathered US trade negotiations well so far, with CUSMA protecting the vast majority of US-Canada trade, but as that agreement comes up for renegotiation, there will likely be economic pressure on Canada to draw trade concessions, and the negotiations themselves will likely impact the Canadian economy regardless of outcome.
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