Tariffs so far: softer than expected, but Canada feels the ripples

Tariffs impact as of August 2025

When President Trump reintroduced sweeping tariffs earlier this year, economists braced for impact. The consensus was clear: U.S. import duties could jump to nearly 20 percent, setting off a cascade of higher prices, weaker demand, and global disruption. Yet as the summer of 2025 draws to a close, the actual fallout looks more muted.

At least for now.

According to a new report from Desjardins, the effective U.S. tariff rate has stabilized around 9.1 percent, less than half of what models initially suggested. A mix of exemptions, implementation delays, and importers rushing to front-load shipments kept the numbers lower. Companies also leaned on inventories to cushion costs, while many resisted passing expenses along to consumers. By June, only about a quarter of U.S. firms reported raising prices in response to the new duties.

This explains why headline inflation has not spiked as dramatically as feared. But it also underscores a central paradox: the tariff impact so far has been softer than expected in the short run, yet the full weight is likely still ahead. Producer prices moved quickly, while consumer prices are expected to lag by six months or more. The current 9.1 percent effective tariff rate is still the highest since 1946, a reminder that even a “weaker-than-expected” shock is historically large.

The U.S. Picture: Delayed but Real Pain

Early resilience has given way to signs of stress. U.S. manufacturing activity has been in contraction for six consecutive months, with August’s ISM index stuck below 50. Firms report rising input costs and thinning order books, even as artificial-intelligence–related investment keeps some plants afloat. The Congressional Budget Office estimates that tariffs will trim $2.8 trillion from federal deficits over the next decade, but at the cost of higher inflation and slower growth.

GDP growth data illustrate the seesaw effect: a sharp contraction in the first quarter, followed by a surprise 3.3 percent rebound in the second as companies drew down stockpiled inventories. Analysts caution that such rebounds are not sustainable. Both the OECD and Yale’s Budget Lab forecast that tariffs and retaliatory measures will shave about half a percentage point off U.S. growth in 2025 and 2026, and may push unemployment modestly higher.

The legal battle only adds uncertainty. A federal appeals court recently ruled that many tariffs exceeded presidential authority, and the issue now looms before the Supreme Court. Businesses and markets remain wary of abrupt reversals that could reorder supply chains yet again.

Canada’s Exposure: Collateral Damage in Trade

For Canada, the tariffs strike indirectly but decisively. The U.S. is Canada’s largest trading partner, and integrated supply chains mean American duties on global goods often translate into weaker demand for Canadian components. Auto parts, metals, and machinery have already shown signs of strain, with U.S. buyers trimming or delaying orders.

The Bank of Canada has flagged tariffs as a downside risk to growth, even as domestic demand remains steady. Canadian GDP is still expanding modestly, buoyed by strong consumer spending and public investment, but the outlook for export-oriented sectors is cloudier. The knock-on effect on the labour market is becoming clearer: temporary layoffs in manufacturing are ticking up, job postings in logistics have softened, and smaller exporters report uncertainty about hiring plans.

Labour Market: Uneven Terrain

The Canadian labour market is not collapsing, but it is shifting. Sectors tied to U.S. trade, manufacturing, forestry, and parts of energy, are seeing softer hiring momentum. By contrast, sectors anchored in domestic demand such as healthcare, IT, green energy, and public infrastructure, remain resilient.

The Canadian Staffing Journal Hiring Index, a composite measure of hiring appetite, recently stood at 5.4 out of 10: a signal of balance, but with employers cautious about long-term commitments. If U.S. weakness deepens, the index could dip further, translating into fewer permanent roles and more reliance on flexible staffing models.

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