Tariffs Weigh on Canada’s Economy: Exports, Manufacturing Output Fall and Job Growth Stalls

U.S. tariffs on Canadian goods are taking a toll on manufacturing and exports, while cooling the labour market, according to a new Statistics Canada report released Monday. Some firms have already begun transferring the added costs of tariffs onto consumers.

After temporary gains earlier in the year—when export volumes from Canada to the United States jumped 20% in January compared with a year ago—exports dropped 26% in April 2025 as tariff threats turned into real trade barriers. Although shipments later rebounded modestly, exports to the U.S. in August 2025 were still 10% below last year’s level.

This decline has led to a contraction in manufacturing output during the second quarter. Over half of manufacturers and roughly one-third of wholesalers anticipate rising input costs for labour, raw materials, and energy over the coming months.

In the third quarter, about one in four businesses reported they had passed part of the tariff burden to their customers within the past six months. Nearly 40% indicated they expect to continue doing so in the next year.

Employment growth has effectively stalled in the first nine months of 2025, inching up by just 0.1%—equivalent to 22,000 jobs. Since the end of 2024, employment fell in business, building, and support services (down 59,000) and in information, culture, and recreation (down 22,000), while finance, insurance, real estate, and leasing industries collectively added 57,000 positions.

Hiring plans have weakened, leaving many job seekers—especially youth and students—struggling to find work. The unemployment rate reached 7.1% in August, half a percentage point higher than in January, marking the highest rate since May 2016 outside of the pandemic period.

Meanwhile, foreign investors steadily trimmed their holdings of Canadian securities between February and May 2025, selling off a total of $22.6 billion in the first half of the year. During the same period, Canadian investors increased purchases of foreign securities from February to June, leading to a net capital outflow of $63.3 billion.