Talks collapsed at the weekend, clearing the way for new tariffs and fresh uncertainty for the housing outlook
The collapse of US-Canada trade talks at the weekend has caused a tariff war the Trump administration says will be “devastating” for the Canadian economy – and once again plunged the outlook for Canada’s housing market into uncertainty.
About $20 billion worth of Canadian exports to the US were hit with 50% tariffs after the latest talks breakdown, with prime minister Mark Carney vowing “dollar for dollar” retaliation beginning on September 8.
That means the trade chaos that threatened to rock Canada’s economy last year and pushed plenty of homebuyers to the sideline is back with a vengeance, raising fresh questions about a possible hit to purchase activity and consumer confidence.
“Uncertainty is never a good thing, and this is going to affect any number of exporters to the US,” Dominion Lending Centres Group (DLCG) chief economist Dr Sherry Cooper (pictured top) told Canadian Mortgage Professional.
“I know that Ottawa is working on a plan to help cover some of the costs to those companies but nevertheless, this is not good for the economy and not good for the Canadian dollar. And therefore, it probably isn’t good for housing, either.”
Rate uncertainty continues as new tariff chaos begins
For now, Cooper doesn’t see the Bank of Canada moving interest rates when it meets next week (September 2) and still expects it to stay on hold for the rest of the year, although much will depend on the resilience of the economy.
A more pressing question for the mortgage market could be on fixed rates. The five-year Government of Canada bond yield, which leads fixed mortgage rates, has crept steadily higher over the past three months (although it slipped noticeably on Monday morning).
Last week, US long-term interest rates jumped amid growing market nerves about inflation fears, ballooning US government debt, and high corporate borrowing by firms investing in artificial intelligence (AI).
That trend could also threaten the outlook north of the border. “Upward pressure on their long-term interest rates generally spill into Canada,” Cooper said. “So that’s another big uncertainty. But it’s certainly not good news.”
US president Donald Trump vowed additional tariffs on Canadian goods on Monday, promising to hike levies on Canadian autos to 50% and introduce new charges on auto parts at the beginning of January.
“Canada has been ripping off the United States of America for years,” Trump wrote in a Truth Social post. “Not sustainable, and NOT ANYMORE!”
Cooper said there was no hint of the two sides finding common ground as a full-on trade war loomed into sight.
“What’s coming out of the US right now is that they have no intention of making a counteroffer anytime soon,” she said. “They’re continuing to threaten that if we do introduce retaliatory measures… terrible things will happen.
“So this is a trade war, unfortunately, and one that Canada certainly didn’t ask for, but we have no choice but to respond.”
Economy showing ‘considerable resilience’ as trade war looms
One silver lining amid the gathering economic storm clouds is the fact that Canada’s economy hasn’t yet fallen into recession despite the trade turmoil that began when Trump took office again in January of last year.
The onset of his tariff regime fuelled fears of a deep economic contraction – but the economy has proven unexpectedly solid and likely continued to eke out growth in the second quarter of 2026, according to Royal Bank of Canada (RBC).
The outlook could certainly be worse as Canadians brace for further turbulence, according to Cooper.
“The Canadian economy has shown considerable resilience to date,” she said. “Our labour markets appear to have been improving. Now, that may not continue for long, but at least we’re going into this trade war on a stronger footing.
“The growth in the second quarter, which will be published this Friday, is likely to have a 3-handle – which is certainly a lot stronger than what we’ve seen in recent quarters.”
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