Canada’s Exports Decline Under Tariff Pressure
Canada’s export sector faced a substantial setback in the second quarter of 2025 as U.S. tariffs on key Canadian goods weighed on trade activity. Statistics Canada data show a 7.5% drop in exports in Q2, marking the sharpest quarterly decline since 2009, outside the COVID-19 period. The pullback followed new tariffs on steel, aluminum, automobiles and other products not fully aligned with the Canada-United States-Mexico Agreement (CUSMA). The broader impact extended beyond trade totals to manufacturing, wholesale trade and employment, underscoring how tariff policy can ripple through the economy.
What Fueled the Slump
The tariff measures targeted a wide range of items, including vehicles, certain consumer goods, and select household appliances. The report notes that prices for many consumer goods—such as new cars, clothing and footwear, grocery items, and travel services—have been affected by tariff actions and the retaliatory measures adopted by Canada. This price pressure can erode demand at the consumer level while increasing production costs for exporters.
Manufacturing and Wholesaling Feel the Pinch
Industry sectors relying on cross-border trade with the United States reported tangible disruptions. In May, 54% of manufacturers and 44% of wholesalers said tariffs had impacted their operations. The ripple effects included slowed growth within the manufacturing sector and weaker activity in wholesale trade, contributing to the broader decline in exports. Companies are actively seeking mitigation strategies to cushion the blow from tariff-induced disruptions, ranging from diversifying markets to revising input sourcing.
Employment and the Labor Market
Beyond goods trade, the data highlight a stubborn clue about the labor market: there was no net employment growth from February to August 2025. This stagnation aligns with slower private-sector job creation, which has trended below 2% for the past 17 months. Public-sector employment growth has also decelerated, underscoring a wider caution in hiring as firms navigate tariff dynamics and shifting demand patterns.
Costs, Pass-Through, and Forward-Looking Risks
Tariffs can alter the cost structure for a broad set of businesses. A significant share of firms—about one-third—reported passing tariff-related cost increases to customers in the last six months. Looking ahead, around 40% of businesses indicated they are likely to raise prices further to cover higher costs within the next year. These price adjustments can dampen consumer spending and influence inflation dynamics, making tariff policy a central consideration for business planning and government policy.
What This Means for Policy and Strategy
With tariffs shaping the competitive landscape, Canadian exporters are evaluating strategies to maintain momentum. Diversification into non-U.S. markets, supply chain reconfiguration, and targeted investments to boost productivity could help reduce exposure to tariff shocks. Policymakers face the challenge of balancing tariff responses with the need to sustain cross-border trade and job creation, while also supporting industries most affected by price pressures.
Conclusion
The Q2 2025 export decline underscores how intertwined Canada’s economic fortunes are with U.S. policy and global demand. As Canadian firms adapt to tariff environments and evolving trade rules, the path to stabilizing exports will likely hinge on a combination of market diversification, productivity gains, and prudent policy responses that foster resilience without triggering counterproductive retaliation.
