While an ongoing trade war with the United States isn't expected to cause an outright recession in Canada, Oxford Economics warns that the dispute could still weigh heavily on the country's economy in the months to come.

A briefing released by Oxford Economics on August 24 predicts that the combination of U.S. tariffs and retaliatory Canadian levies could shave up to 0.3% off of Canada's expected GDP growth in 2027. Quebec, New Brunswick and Ontario would be the country's hardest-hit provinces, given their high concentration of facilities that manufacture goods threatened by tariffs, and their reliance on U.S. exports. 

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The tariffs are also expected to push prices higher, with Oxford Economics forecasting Canadian inflation in 2027 to run about 0.3 percentage points above its previous outlook. That could leave the Bank of Canada with little room to cut interest rates, keeping borrowing costs higher for households and businesses even as economic growth slows.

However, the situation remains "highly fluid," Oxford Economics added. While the Trump administration's 50% tariffs against $20 billion in Canadian goods took effect on August 22, Canada is waiting until September 8 to enact its own dollar-for-dollar retaliatory levies. Until then, the two sides have time for "an off-ramp and a deescalation of trade tensions." 

"This has happened in the past, such as when 25% U.S. tariffs were initially imposed on all Canadian goods at the start of the trade war in early 2025, before being scaled back and softened by USMCA compliance exemptions a few days later," Oxford Economics explained.