How have trade tensions with the United States affected Canadian inflation and labour markets since 2024?

1. Trade shock stalled a labour‑market recovery that was just gaining traction

Canada entered the tariff episode with unemployment falling from earlier peaks as the Bank of Canada had cut rates and employment growth was strengthening, but the hit to exports and resulting uncertainty interrupted that recovery: unemployment stopped improving and hiring intentions paused as firms delayed new hires amid weaker external demand ^{[4] [5] [6]}.

2. Exports and output took the direct hit; jobs followed indirectly

US tariffs and retaliatory measures caused sharp drops in some export categories—manufacturing and wholesaling activity contracted and economy‑wide output edged lower—producing stalled employment growth and no net payroll gain over several months in 2025, illustrating how trade shocks transmit into job losses through falling demand rather than immediate mass layoffs everywhere ^{[7] [6] [8]}.

3. The tug‑of‑war on inflation: tariffs raise costs, weaker demand pushes prices down

Analysts and the Bank of Canada emphasize a dual effect: tariffs raise input and substitution costs (potentially passed to consumers), while weaker demand from lost export markets and slower hiring exerts downward pressure on inflation; in practice these forces roughly offset so headline inflation has remained near the 2% target even as sectoral and input price pressures rose ^{[1] [2] [5]}.

4. Exchange rates, supply reconfiguration and firm behaviour amplified price dynamics

The loonie’s depreciation—nearly 6% against the US dollar by late 2024—made imports more expensive and heightened inflation risks, while businesses reported higher costs searching for alternative suppliers and routes, suggesting persistent pass‑through risks if firms raise consumer prices to protect margins ^{[9] [1] [3]}.

5. Uneven regional and demographic impacts across labour markets

Not all provinces or groups felt the same: resource and construction regions with diversified exports and lower tariff exposure retained stronger labour conditions, while manufacturing‑dependent areas and younger workers—students and early‑career entrants—faced higher unemployment or skill underutilization, raising concerns about long‑duration unemployment and weaker transitions from school to work ^{[10] [7] [8]}.

6. Policy responses, forecasts and the political economy behind the data

Monetary policy responded with aggressive rate cuts before trade escalation, limiting immediate inflationary effects but removing a policy tool to cushion tariff pain; fiscal authorities are projecting lower GDP paths and higher unemployment in fiscal forecasts, while private forecasters warn that persistent tariffs could keep investment low and productivity weak ^{[4] [5] [11]}. Observers note conflicting incentives: some Canadian measures to diversify markets and remove internal barriers are constructive, yet retaliatory tariffs and political signalling on both sides complicate swift de‑escalation and may reflect political agendas in Washington and Ottawa that prolong uncertainty ^{[12] [13]}.

7. What’s likely next and where uncertainty still rules

Most central banks and forecasters see inflation settling near 2% over the medium term as weaker demand offsets cost pressures, but the duration and breadth of tariffs will determine whether labour weakness becomes entrenched or temporary; should tariffs persist, forecasters project permanently lower GDP and subdued investment, making the labour market recovery slower and more uneven ^{[2] [5] [13]}. Available sources do not allow definitive attribution of every sectoral job loss to tariffs alone, and outcomes hinge on how quickly firms diversify markets and governments invest in trade and transport infrastructure ^{[1] [11]}.