As of late October 2025, a BMO report sets out three futures for Canada under a long trade war with the United States: the current tariffs holding, with unemployment edging to 7.3% from 7.1%; an average tariff rising from 7% to 15%; and a full rift with a 35% US tariff, a recession and a policy rate near 1%.
I'm Moe Asgarian, a real estate broker in Toronto and ranked #47 worldwide at RE/MAX, and I read reports like this one for what they do to a housing decision. The report's own summary as of late October 2025 was blunt: even in the most optimistic of the three cases, a prolonged trade war leaves Canada with serious and lasting economic damage. One piece of context, because it shaped the moment. Talks between Carney and Trump were paused at the time, after the American side objected to an advertisement critical of tariffs that aired during a baseball game.
Scenario one: today's tariffs simply continue
In the first case Canada muddles through. Free trade continues, neither country adds new tariffs, and the ones already in place on steel, aluminum and lumber stay. Business investment stays low. The Business Council had warned in the week before, in late October 2025, that the country is in an investment crisis, and a release at the time showed Canada's trade deficit widening while exports fell. The outcome BMO projected on this path was unemployment rising to 7.3%, from 7.1% at the time. On that path the hardest part is behind us: unemployment returns to roughly its 2016 level without reaching the 2009 crisis. The report also expected the Bank of Canada to cut the policy rate by about another half a point by early 2026, which is not the mark of a strong economy but is not a disaster either.
Scenario two: the average tariff goes from 7% to 15%
The second case is worse. Trump adds more tariffs and the average tariff on Canada climbs from 7% to 15%, with the United States either leaving the joint agreement with Canada and Mexico, ignoring it, or folding tariffs into a new framework. All of those were live possibilities as of late October 2025. Canada answers with a 5% tariff and stops there, out of fear of a larger American retaliation. You would expect the Bank of Canada to cut again in conditions like that, but BMO's view was that it probably would not, because the bank would be worried about lasting price increases caused by the retaliatory tariffs. The report had the policy rate held around 2% instead.
Scenario three: the continental rift
In the third case, the one the report calls a continental rift, everything comes apart. The United States applies a 35% tariff on everything and Canada retaliates with 15%. A recession follows without question, unemployment rises by 1 to 1.5 points, and the comparison is the period after the 2009 global financial crisis. In that scenario the policy rate probably falls to around 1%.
What makes the middle scenario less likely: Carney's approach
One thing working against the middle scenario is how Carney has handled tariffs. Through late October 2025 we had not seen him make sharp, confrontational, retaliatory moves. The opposite, in fact: in several cases he gave ground and removed retaliatory tariffs. Where that policy ends up is unknown. If it works, it can keep American tariffs in check. If it does not, conditions for Canada and its economy get worse than they already are. This is the biggest test the Liberals have to get through, the pressure on them is heavy, and they cannot carry a situation like this for years. It is also worth remembering that Canada's hand in these talks is not strong. The blow Canada can land on the United States is small next to the blow the United States can land on Canada. The government has not been sitting still about it: it signed economic agreements with Indonesia and South Korea among others, and opened negotiations with Mexico, so that Canada has options if the worse scenarios arrive.
The variable the scenarios leave out: the mortgage renewal wave
One caution about the report is that its main driver is the Carney and Trump negotiations. In a market like housing, other variables matter just as much, and the renewal wave is one of them. BMO said in a separate report, as of October 2025, that about 1.8 million mortgages would come up for renewal over the following 12 months, and that a quarter of those would face payment increases of more than 20%. That is a large volume of money leaving the economy inside a single year, and it does not depend on what happens at a negotiating table. If you are deciding between buying, selling or renewing, that is the number I would put beside the three scenarios.
If you want to talk through what these scenarios mean for your own purchase, sale or renewal, fill out the form at the bottom of this page or book a free consultation. Stay well and take care.
Frequently asked questions
What are the three scenarios in BMO's October 2025 report on Canada's economy?
The first has today's tariffs continuing, with unemployment rising to 7.3% from 7.1% and the Bank of Canada cutting about another half a point by early 2026. The second has the average tariff on Canada rising from 7% to 15%, with the policy rate held near 2%. The third, a continental rift, has a 35% US tariff, a 15% Canadian response, a recession and a policy rate near 1%.
How many Canadian mortgages are up for renewal, and how large are the payment increases?
BMO reported in October 2025 that about 1.8 million mortgages would come up for renewal over the following 12 months, and that a quarter of those would face payment increases of more than 20%. That pulls a large volume of money out of the economy inside a single year, separate from anything happening in trade talks.
Why were Canada and the United States not negotiating in late October 2025?
Talks between Carney and Trump were paused at that point. The American side had objected to an advertisement critical of tariffs that aired during a baseball game. Both leaders had said a great deal about the future of the trade relationship, but the pause left the direction of any deal unresolved.