New US Section 338 tariffs and Canadian retaliation will reduce Canada’s GDP by 0.3 percentage points by 2027, with growth impacts peaking late 2026.
New US Section 338 tariffs and Canada’s retaliatory measures will trim 0.3 percentage points from Canadian GDP by the end of 2027. The growth drag will be concentrated in late 2026, with front-loaded impacts in Q3 and Q4 of that year.
The tariff escalation pushes policy-implied rates to 7.5% from around 5.0%, marking the highest level since Section 122 replaced 35% IEEPA tariffs. This compares to a 3.5% rate if proposed steel, aluminum, and auto tariff reductions had proceeded. The dispute targets specific sectors, limiting broader economic fallout.
Fiscal supports totaling CAD 7.5bn are expected to cushion the blow, though export momentum in primary metals and motor vehicles may weaken. Quarterly GDP contractions are not anticipated, but the rebound in Canadian exports seen in early 2026 could lose steam.