Canada has firepower to fight tariff war — but there’s a catch

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It looks like the trade war Canada has been fearing for weeks has arrived.

U.S. President Donald Trump confirmed yesterday that his administration will go ahead with tariffs against Canada and Mexico at a minute past midnight last night.

Monday night Prime Justin Trudeau responded, promising a first wave of retaliatory tariffs on $30 billion worth of U.S. goods if the U.S. didn’t back down. A second round on another $125 billion worth of products will follow in three weeks.

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This morning it appeared that neither side had budged.

“Our tariffs will remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” Trudeau said Monday night.

“While we urge the U.S. administration to reconsider their tariffs, Canada remains firm in standing up for our economy, our jobs, our workers, and for a fair deal.”

The predictions that preceded this outcome were dire. Economists forecast that if the worst happened and Canada faced 25-per-cent tariffs on goods, and 10 per cent on energy, the country would be thrown into recession.

Some said Canada would need a pandemic-sized relief package to support struggling businesses and citizens who may lose their jobs because of the tariffs.

But just how much can Canada afford?

Desjardins Group economists reckon the federal government could pitch in $100 billion for one-time aid this year and still keep the federal debt-to-GDP ratio below its pandemic peak.

Turns out our finances aren’t as bad as many thought, according to the economists.

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The federal government has a much lower level of debt as a share of GDP than the United States and many other advanced economies, said Randall Bartlett, deputy chief economist of Desjardins.

There is also the chance that the economy will not need as much support as during COVID-19. Desjardins is predicting a much shallower recession from the trade war, rather than the hard, sharp plunge of the pandemic.

“Indeed, the depth of the recession in the next few quarters could look more like that during the GFC (Great Financial Crisis),” said Bartlett.

Overdoing stimulus would only fuel inflation already inflamed by tariffs, so targeted, time-limited support would deliver ‘more bang for the buck,” he said.

The catch is that with Parliament prorogued until March 24, the Liberal leadership still up in the air and a federal election on the horizon, Ottawa is limited in how much it can do.

“Outside of existing programs that can be funded when the House of Commons isn’t sitting and other modest measures, it seems as though there isn’t much new stimulus the federal government can provide in the event of a full-blown trade war,” said Bartlett.

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“Instead, provincial governments may need to step into that void, leading to larger deficits and higher debt among sub-sovereigns than would otherwise be the case.”

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Calgary home sales hit their lowest level since early 2023 in February, suggesting that Trump’s tariff threats have hit home in Alberta.

“There is no doubt that, as elsewhere in the country, the threat of American tariffs has weighed on the housing market in Calgary, with potential buyers waiting for less uncertainty before acting,” said Daren King, an economist with National Bank of Canada.

Home sales fell more than 18 per cent from the year before, the third decline in a row, while the inventory of homes for sale jumped 60 per cent to the highest level for a February since 2021.

• Prime Minister Justin Trudeau to hold a press conference in Ottawa on Donald Trump’s tariffs this morning with Finance Minister Dominic LeBlanc, Foreign Affairs Minister Melanie Joly and Public Safety Minister David McGuinty.
• Earnings: Best Buy Co Inc., Pet Valu Holdings Ltd, Advantage Energy Ltd, Target Corp.

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Investors can find unpredictable turns in stock markets hard to handle but their resolve will especially be tested this year due to U.S. President Donald Trump’s actions. Economists expect market volatility surges driven by a combination of policy changes, trade disruptions and economic and currency shocks from his administration. Turmoil can also bring opportunity too.

Julie Cazzin has some sage advice from investing experts on how to ride out the storm. Read more here

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Calling Canadian families with younger kids or teens: Whether it’s budgeting, spending, investing, paying off debt, or just paying the bills, does your family have any financial resolutions for the coming year? Let us know at wealth@postmedia.com.

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McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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