The collapse of trade talks between the U.S. and Canada over the weekend triggered a tariff war that, according to the Trump administration, will be “devastating” for the Canadian economy — and once again plunged the outlook for Canada’s housing market into uncertainty.
The collapse of trade talks between the U.S. and Canada over the weekend triggered a tariff war that, according to the Trump administration, will be “devastating” for the Canadian economy — and once again plunged the outlook for Canada’s housing market into uncertainty.
After yet another breakdown in negotiations, Canadian exports to the U.S. worth about $20 billion were hit with 50% tariffs, and Prime Minister Mark Carney promised retaliatory measures “dollar for dollar,” starting September 8.
This means the trade chaos that last year threatened to shake the Canadian economy and pushed many homebuyers to the sidelines has returned with renewed force, once again raising questions about a potential hit to buying activity and consumer confidence.
“Uncertainty is always bad, and it will affect a wide range of exporters doing business with the U.S.,” Dominion Lending Centres Group (DLCG) chief economist Dr. Sherry Cooper told Canadian Mortgage Professional. “I know Ottawa is developing a plan to partially cover costs for these companies, but nevertheless it’s bad for the economy and bad for the Canadian dollar. And that means it’s probably bad for the real estate market as well.”
Rate uncertainty persists amid the new tariff chaos
Cooper does not expect the Bank of Canada to change its policy rate at next week’s meeting (September 2), and she continues to forecast that the central bank will hold steady through the end of the year — although much will depend on the economy’s resilience.
A more pressing issue for the mortgage market may be tied to fixed rates. The yield on five-year Government of Canada bonds, which sets the tone for fixed mortgage rates, has been rising steadily over the past three months (though it fell noticeably on Monday morning).
Last week, long-term interest rates in the U.S. jumped sharply amid growing market anxiety — concerns about inflation, the rapidly rising U.S. national debt, and heavy corporate borrowing by companies investing in artificial intelligence.
This trend could pose a threat to the outlook north of the border as well. “Upward pressure on their long-term interest rates typically spills over into Canada,” Cooper noted. “So that’s another major uncertainty. And of course, there’s nothing good about that.”
U.S. President Donald Trump on Monday promised new tariffs on Canadian goods, announcing an increase in duties on Canadian cars to 50% and new levies on auto parts starting in early January.
“Canada has been taking advantage of the United States of America for years,” Trump wrote in a post on the Truth Social platform. “This is unacceptable, and IT WILL NOT HAPPEN ANYMORE!”
According to Cooper, there are still no signs that the two sides will find common ground — and a full-blown trade war is coming into ever sharper focus.
“From what we’re hearing out of the U.S. right now, they have no intention of putting forward a counterproposal anytime soon,” she says. “They keep threatening that if we retaliate… something terrible will happen. So unfortunately, this is a trade war — one Canada certainly didn’t seek, but we simply have no choice but to respond.”
The economy shows “significant resilience” amid the looming trade war
One of the few positives amid the gathering economic clouds is that Canada’s economy has not yet slipped into recession — despite the trade turbulence that began with Trump’s return to power in January of last year.
The introduction of his tariff regime initially sparked fears of a deep economic downturn — but the economy showed unexpected resilience and, according to Royal Bank of Canada (RBC), likely continued to post growth in the second quarter of 2026.
Cooper says the situation could have been much worse as Canadians brace for new shocks.
“To date, the Canadian economy has demonstrated significant resilience,” she notes. “Our labour market appears to continue improving. That may not last very long, but at least we’re entering this trade war from a stronger position. Growth in the second quarter, the data for which will be released this Friday, will likely come in around 3% — and that’s noticeably stronger than the results of recent quarters.”
