Intelligent Investment
Brace For Impact
Canada Monthly Market Commentary - August 2026
August 28, 2026 2 Minute Read
Canada braces for another extended period of economic uncertainty after trade talks with the U.S. broke down and a new phase of the trade war began. Following last month’s announcement of new 50% U.S. tariffs on about $28 billion of Canadian goods, negotiations were seemingly close to finalizing a trade deal before they collapsed at the last minute. With what Prime Minister Carney described as “unfair, uneconomic” U.S. terms, no deal was struck and the new 50% U.S. tariffs went into effect. In response, Canada announced dollar-for-dollar retaliatory measures to which the U.S. has threatened even further escalation. At present, Canada has no immediate plan to return to the negotiating table and is preparing new support programs to aid impacted workers and businesses over the coming years.
This escalation in the trade war comes as recent economic data had been encouraging for Canada and now puts the nascent economic rebound at risk. Real GDP for Q2 2026 is on track for an estimated 3.4% annualized increase and the Bank of Canada’s July projection had pointed to stronger annual growth in 2027 and 2028. The labour market has also been resilient, adding a net 68,800 jobs in the year through to July with the unemployment rate improving to a two-year low. However, with more U.S. tariffs in force alongside Canada’s retaliatory measures, the economic momentum faces challenges for H2 2026 and beyond. When the Bank of Canada next meets on September 2nd, the central bank is widely expected to hold interest rates flat but will also have to confront an economic outlook that is quite different from the base case assumptions it published in July.
In the meantime, economists are trying to gauge the extent of the potential economic damage and most project that these new U.S. tariffs could lower Canada’s growth by 0.2% to 0.6% in 2027. Analysis by the University of Calgary also estimates some 87,000 jobs could be at risk as a result of this latest tariff round. However, if trade tensions continue to escalate and it leads to the unraveling of CUSMA, Oxford Economics warns this would lead to a recession and leave Canada on a permanently lower growth path. While this scenario is still considered unlikely, uncertainty has risen up again and will have an impact on economic growth going forward.
Economic Highlights:
- Employment grew by 75,100 jobs in July 2026 and the unemployment rate eased to 6.4%, its lowest level since July 2024.
- Headline inflation rose to 3.0% in July 2026 led by higher gas prices while core measures CPI-median edged slightly higher to 2.0% and CPI-trim held flat at 1.9%.
- Retail sales increased 0.6% in June 2026, however, the advanced estimate for July indicates a 0.8% decrease.
Viewpoints:
- Carney says he's suspending trade talks and matching new U.S. tariffs
- Canada won’t return to negotiating table until U.S. changes its attitude, Carney says
- Re-escalating trade war puts Canada's economic rebound at risk: economists
- Canada could lose 90,000 jobs to Trump’s 50% tariffs. Here’s how
- Tariffs will hurt, but escalation of trade war risks a recession, economists warn
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