The yield on Canada’s 10-year government bond eased to around 3.67% after briefly reaching a more than two-year high of 3.76% on August 21st, as renewed trade tensions with the United States cast doubt on the country’s economic recovery. US President Donald Trump announced that tariffs on all Canadian cars, trucks, automotive parts, and steel will rise to 50% on January 1, 2027. The move followed Prime Minister Carney’s pledge to retaliate against an earlier wave of US tariffs imposed after trade talks collapsed.
Washington’s latest measures include 50% tariffs on Canadian furniture, plastics, plywood, and electrical equipment, on top of existing 25% tariffs on steel, lumber, and autos. The heightened tariff burden has increased downside risks to growth, weakening the case for a Bank of Canada rate hike this year. The economy is now expected to contract just as it had begun to show signs of recovery. In July, Canada added 75,000 jobs, and inflation inched up to 2.9%, driven largely by higher gasoline prices rather than broad-based price pressures.
