The recent announcement of a 50% tariff on $20 billion worth of Canadian exports has raised concerns about the country’s economic growth and inflation outlook. According to UBS Economics, the weighted average tariff on Canadian goods has increased to 7.1%, which could have significant multiplier effects and upstream/downstream disruptions. As a result, the bank has slightly lowered Canada’s 2024 growth forecast to 0.9% from 1.0%.

The impact of tariffs on inflation is also a cause for concern. With tariffs pushing goods prices higher and potentially weakening the Canadian dollar, inflation risks are looming. The Bank of Canada may hold rates steady in the short term, but trade tensions could pose a downside risk to future rate hikes.

Meanwhile, the ongoing USMCA renegotiation faces delays, adding further uncertainty to an already challenging economic landscape. As Canada prepares to retaliate against the tariffs on September 8, it remains to be seen how these developments will play out and what impact they may have on the country’s economy.