With exports cratering and escalating uncertainty for businesses and consumers, the Canada–United States

trade war has caused a widespread “fall-off in momentum” across several touchpoints in Canada’s economy, according to the author of a new report.

“If I had to underline one common theme, it’s obviously uncertainty and what businesses and households are doing to mitigate those challenges posed by uncertainty,” said Guy Gellatly, chief economic advisor at Statistics Canada, about the report that highlights key economic developments since the start of the year.

Gellatly said the report pulls together the “major impacts” of

tariffs and U.S. trade policies across several categories including business investment, imports and exports, economic growth, consumer spending and the

Canadian businesses strive to pivot from U.S. reliance

labour market . Here’s a snapshot of what’s happening in three key areas. While first-quarter economic growth was supported by export volumes increasing 1.4 per cent even as tariff threats intensified, in the second quarter export volumes “plunged” 7.5 per cent, the report said. This was the largest decline since 2009 outside of the COVID-19 pandemic period. Real gross domestic product shrunk 0.4 per cent after six quarters of growth and business labour productivity fell one per cent.

The American market is critical for many Canadian businesses: 76 per cent of Canada’s merchandise exports went to the U.S. last year. The slowdown in Canada–U.S. trade this year “has acutely affected Canadian manufacturers that rely heavily on U.S. demand,” said the report.

However, Gellatly said Statistics Canada’s survey on business conditions for the third quarter of 2025 shows “a great deal of resiliency and adaptability.” Over the next 12 months, 15.8 per cent of businesses plan to increase domestic sourcing, 14.2 per cent plan to seek alternative suppliers outside the U.S. and 5.6 per cent plan to seek alternative customers outside the U.S.

“It’s not like businesses are taking this standing still. They’re working as hard as they possibly can to solve these problems in real time,” said Gellatly. “That’s the kind of activity that often you don’t necessarily see from a headline number.”

Households continue to spend, even as tariffs hit prices

Despite the spreading uncertainty, consumer consumption is fairly robust as retail spending increased over the past five consecutive quarters. Increased household spending — led by purchases of new vehicles — partly cushioned declines in trade and business investment in the first and second quarters of 2025, the report said.

“It’s certainly an interesting point to emphasize that (households) have remained so stable and (are) one factor that really has supported growth through that difficult second quarter,” said Gellatly.

This is despite the fact consumers are seeing higher prices. One-quarter of Canadian businesses reported in the third quarter that they were passing cost increases due to tariffs on to their customers over the past six months, according to the agency’s business conditions survey. Meanwhile, 39 per cent reported being very likely or somewhat likely to pass on costs to their customers over the next 12 months.

The report said tariffs have “directly or indirectly affected” prices for goods including new cars, clothing and footwear, certain household appliances, a range of grocery items and travel services. However, Gellatly said it’s hard to gauge the overall impact of the trade war when looking at the all-items consumer price index.

“It’s not like you’re seeing large aggregate movements in prices that you can clearly link to tariffs,” he said.

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Labour market cools as businesses hit pause on hiring

Tariffs are also affecting Canadians’ jobs. “While layoff rates have remained comparable to rates observed before the trade conflict, hiring intentions have weakened as many unemployed workers struggle to find work,” the report said.

Canada’s unemployment rate was 7.1 per cent in September, the highest rate since May 2016 outside of the COVID-19 pandemic. The report said employment edged up just 0.1 per cent during the first nine months of 2025, compared with a one per cent increase during the last nine months of 2024.

Overall, Canada saw zero net employment between February and August.

“There’s clearly been a lot of churn underneath that, so you’ve had gains and losses,” said Gellatly. “But on balance, when you sum all of that up, you haven’t seen any net increase in employment over that period.”

The agency’s survey on business conditions for the third quarter of 2025 found that just over half of Canadian businesses anticipate being able to maintain their current level of staffing over the next year or longer if the current tariff environment continues.

“What does uncertainty tend to do? It tends to lock you in place in terms of decision-making, and that’s why many out there are calling for a resolution or to get clarity on a lot of these issues as quickly as we can,” Gellatly said.