Senior economist discusses impact of tariffs on Canadian, U.S. economies

As the U.S. Supreme Court weighs the legality of recent U.S. tariffs, a leading economist says the trade war has already reset the playing field. The new reality: higher—but largely manageable—tariffs that businesses and consumers on both sides of the border will need to navigate for the foreseeable future.

Tariffs likely to persist, regardless of court rulings

Sal Guatieri, senior economist and director at BMO Capital Markets, believes tariffs will remain a feature of the policy landscape even if courts strike down specific measures. His view is that the U.S. administration could reach for other trade statutes to sustain or reimpose duties, keeping pressure on cross-border commerce.

Recently, a U.S. appeals court found certain tariffs unlawful but allowed them to stay in place through October 14 to give time for an appeal to the U.S. Supreme Court. Whatever the legal outcome, Guatieri argues the practical effect is that companies should plan for continued friction in trade flows rather than a quick return to pre-trade-war conditions.

U.S. economy: growth cools, investment holds up

Evidence of strain is appearing in U.S. data. Private nonfarm payroll growth averaged roughly 80,000 jobs over the five months leading into July—outside of the pandemic period, among the weakest stretches since 2010. Real GDP expanded at about a 1.4% annualized pace across the first two quarters, the slowest in three years, while 30-year mortgage rates remained above 6.5%.

Even so, business investment has been a bright spot. Guatieri points to the rapid adoption of artificial intelligence and the buildout of related infrastructure as key drivers of capital spending in the first half of the year. By contrast, consumers appear to be easing off after a resilient run, tempering overall momentum. In his assessment, U.S. growth has downshifted to just under a 1.5% annualized rate, notably below the near-3% pace seen last year.

Canada: targeted sectors feel the heaviest pressure

Canada’s economy contracted in the second quarter, reflecting concentrated damage in steel, aluminum, and motor vehicles—industries facing tariffs reportedly between 25% and 50%. Guatieri cautions that while a technical recession might still be avoided, downside risks will linger until the United States–Mexico–Canada Agreement (USMCA) faces renegotiation next year.

Real GDP fell at a 1.6% annualized rate in the second quarter, with notable declines in exports and business equipment investment. There are, however, pockets of resilience: real consumer spending rose at a 4.5% annualized pace in Q2, and auto sales picked up in July. Housing activity is showing tentative improvement after a prolonged slump, though conditions vary considerably by region.

Policy uncertainty remains a headwind

The path forward is murky. While some trade understandings have been reached with partners, the broader outlook for U.S. tariffs and North American trade rules is unsettled. If the U.S. were to give six months’ notice and withdraw from the USMCA, Guatieri warns Canada could face a severe downturn given its deep integration with the U.S. market.

In the nearer term, the legal process will keep uncertainty elevated. Even if current tariffs are curtailed by the courts, alternative legal avenues may keep duties in place or reintroduce them in revised form, prolonging the cautious stance among executives and investors.

What businesses and consumers can do now

• Plan for elevated tariffs as a baseline scenario rather than a temporary shock.
• Diversify suppliers and markets to reduce exposure to any single tariff line or region.
• Invest in productivity, automation, and AI-enabled tools to offset higher input costs.
• Monitor policy developments around the USMCA and potential rule changes that could affect cross-border operations.
• Consider financial hedges for currency and commodity risks where appropriate.
• Evaluate exposure to steel, aluminum, and automotive supply chains, and adjust inventory and pricing strategies accordingly.
• For households, keep an eye on borrowing costs and mortgage rates, which remain elevated and can affect spending plans.

The bottom line: tariffs have become a structural feature of the North American trade landscape. While the legal and political narratives will ebb and flow, businesses and consumers should adapt to a higher-friction environment—one that still permits growth but demands more careful planning, investment in efficiency, and vigilance on policy risk.