Budget Officer claims trade war will cause ‘deep recession’

The Budget Office announced yesterday that a continental trade war would cause a deep recession in Canada, mirroring a similar forecast issued by the Bank of Canada last month.

“Our modeling suggests these policies would permanently reduce Canada’s real GDP by about two percent over the medium term,” said a Budget Office report Economic And Fiscal Outlook. 

“There is considerable uncertainty around the potential impacts of tariffs particularly in the short term,” it added. “The impact could also be higher or lower depending on the eventual severity of the trade actions and Canada’s response.”

Tiff Macklem, the Bank of Canada Governor, told reporters that U.S. tariffs would “wipe out” economic growth for the next two years, marking the steepest decline since 1992.

New Deal for Mexico, but not for Canada! pic.twitter.com/2lBnxt6AfB

A continental trade war will be devastating, the Prime Minister admitted on Tuesday. “I don’t know if negotiations would be of any use,” he said. 

On Thursday, President Trump granted Mexico a one month reprieve on tariffs under all goods covered by current free trade legislation. “Our relationship has been a very good one,” he said. “We are working hard, together, on the border.”

Trudeau reiterated that his government has already addressed America’s concerns on the southern border. “Our border is already safe and secure,” he told reporters March 4, a claim he has made for months.

Trump then imposed 25% tariffs on Canadian imports to the U.S. for not addressing its porous borders. He doubled down on similar tariffs for steel and aluminum imports, slated for March 12.

Budget Office @PBO_dpb forecasts deep recession with Trump tariffs, at least a 2% loss of GDP over two years: "The impact could also be higher."  https://t.co/uQPI1a1Z1S pic.twitter.com/YhdQNpqF1w

As reported by Blacklock’s, the economy can also face adverse effects even by the threat of tariffs, according to analysts. “Heightened trade uncertainty could weigh more heavily on business investment and household spending than anticipated,” said Outlook. 

“If businesses delay expansion plans and households pull back on discretionary spending, economic activity could slow more than expected leading to weaker job growth and lower overall demand.”

Meanwhile, Trudeau appeared unfazed by the uncertainty surrounding a potential global trade conflict. “No matter how long this lasts, no matter what the cost, the federal government and other orders of government will be there for you,” he said. “We will defend Canadian jobs.”

The impact would be much worse than the Covid recession, warned the Bank Governor. Cabinet warned the trade war could cost more than a million Canadian jobs.

"What he wants is to see a total collapse of the Canadian economy, because that'll make it easier to annex us." PM Trudeau says Trump's ultimate goal with his tariffs is to make Canada become the 51st state. pic.twitter.com/BGJqIouPW1

Annually, Canadian exports to the U.S. total more than $590 billion, roughly 77% of Canada’s global exports, reported Blacklock’s. 

“Yes, he can do damage to the Canadian economy and he started,” Trudeau said, “but he is rapidly going to find out as American families are going to find out that it’s going to hurt.”

On Tuesday, the federal government introduced a 25% levy on $30 billion worth of American products, reported the Canadian Press. Should the trade war remain unresolved, the Liberal government will expand them to cover another $125 billion in U.S. goods in three weeks.

“Increased trade friction with the United States is a new reality,” Macklem told reporters on February 21. He predicted an 8.5% decline in Canadian exports, 12% drop in business investment, and lesser consumer spending.

“Canadian exporters respond by cutting production and laying off workers,” continued Macklem. “If tariffs are long-lasting and broad-based, there won’t be a bounce-back,” he clarified.

The U.S. tariffs and counter-tariffs are expected to impact $3.6 billion in daily bilateral trade.

Alex Dhaliwal

Journalist and Writer

Alex Dhaliwal is a Political Science graduate from the University of Calgary. He has actively written on relevant Canadian issues with several prominent interviews under his belt.

Help fund Alex's journalism!