OTTAWA — New US tariffs imposed under Section 338 of the Tariff Act of 1930, combined with Canada’s retaliatory measures, are expected to shave roughly 0.3 percentage points off Canadian GDP by 2027, according to a new report from TD Securities. Economist Robert Both, who authored the analysis, said the growth drag will be most pronounced in late 2026 as the trade measures take full effect.
The report marks one of the first detailed attempts by a major Canadian bank to quantify the macroeconomic fallout from the latest escalation in US-Canada trade tensions. The Section 338 tariffs, which the US administration invoked in early August, target a range of Canadian exports, including steel, aluminum, and agricultural products. Canada responded within days with counter-tariffs on US goods, including bourbon, orange juice, and heavy machinery.
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How the Tariffs Bite
The TD Securities analysis breaks down the GDP impact into two channels: direct export losses and indirect effects from supply chain disruptions and reduced business investment. The direct channel accounts for roughly two-thirds of the projected 0.3 percentage point drag, while the indirect channel — including uncertainty-driven delays in capital spending — makes up the remainder.
Both noted that the timing of the impact is heavily weighted toward late 2026. “The tariffs were announced mid-year, so the full effect on trade flows and investment decisions will only materialize over the following quarters,” he wrote. “Businesses that rely on cross-border supply chains are already adjusting procurement and production schedules, but the macroeconomic data will lag.”
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The report also highlights sectoral disparities. Manufacturing-intensive provinces like Ontario and Quebec are expected to feel the brunt, while energy-exporting regions such as Alberta may see a more muted impact, depending on the final scope of the tariffs. Agriculture, particularly pork and dairy, faces elevated risk given existing trade disputes.
What It Means for the Canadian Economy
The 0.3 percentage point drag is modest in absolute terms but significant in the context of an economy already growing at a subdued pace. The Bank of Canada’s latest projections put 2026 growth at around 1.5%, meaning the tariff shock could effectively erase a fifth of expected growth. That could influence monetary policy decisions in the coming months.
Financial markets have already begun pricing in a higher probability of rate cuts. The Canadian dollar weakened against the US dollar in the weeks following the tariff announcement, and bond yields dipped as investors reassessed the growth outlook. TD Securities’ report suggests the central bank may need to weigh the inflationary impact of tariffs — which raise import costs — against the deflationary effect of weaker demand.
For businesses, the key uncertainty is duration. If the tariffs are lifted quickly through negotiation, the GDP impact could be partially reversed. But Both cautioned that the current trajectory suggests a prolonged dispute, with both governments digging in on core demands.
Looking Ahead
The next few months will be critical. Bilateral trade talks are scheduled for late September, and both governments have signaled willingness to negotiate but not to back down from their stated positions. The US administration has framed Section 338 as a tool to address long-standing trade imbalances, while Canada insists its retaliation is proportionate and justified under international trade rules.
Economists will be watching monthly trade data and business confidence surveys for early signs of the impact. The TD Securities report serves as a baseline estimate; if the dispute escalates further, the GDP drag could exceed 0.3 percentage points, particularly if investment spending freezes or supply chains are permanently rerouted.
For now, the numbers provide a concrete reference point for policymakers and market participants handling a period of heightened trade uncertainty. As Both concluded, “The scale of the impact will ultimately depend on how long these measures remain in place and whether they expand or contract.”
