US Tariffs and the Canadian Housing Market: What a Trade War Would Mean

The tariff fight between Canada and the United States is on hold for 30 days. Both sides agreed, for now, not to put tariffs on each other's goods. I want to walk through what is actually happening, and what it could mean for Canada if this fight does start and drags on.

I am Moe Asgarian, a senior real estate broker in Toronto. Before he was even sworn in, Donald Trump started threatening tariffs on Mexico and Canada. The number kept changing, 10 percent one day, 25 the next, even 100. His line was that Canada and Mexico profit heavily from trade with the US and should pay for it.

Where the tariff standoff stands right now

It got serious once Trump took office and said on day one that the tariff plan was real. The idea was a 25 percent tariff on anything made in Canada or Mexico entering the US, used as leverage. He wanted Canada to guard the border harder and crack down on fentanyl reaching the US. The tariffs were nearly in place, set for February 1, and Canada announced counter-tariffs on American goods. It even reached the point where Canadian fans booed the US anthem at a hockey game in Ottawa. Then, on Monday February 3, markets opened and clearly did not like it. Trump struck a deal with Mexico's president to delay 30 days, and after two phone calls, morning and afternoon, with Justin Trudeau, he delayed Canada's tariffs 30 days too. Reports say the talks were mostly about the border, though Trump also complained about Canada's closed banking rules. Trudeau posted that both countries would place forces at the border and cooperate on cartels and criminals, and Trump agreed to pause for a month.

What a real tariff war would do to Canada's economy

So what if this fight actually starts? The Bank of Canada has an answer. In short, a serious, long-running trade conflict would hit Canadian economic activity hard. First, exports to the US would drop sharply. Tariffs are basically a tax American buyers pay, so if US companies have to pay 25 percent more for Canadian goods, many will look elsewhere or make the product at home. Three ugly things follow. One, Canadian companies face lower demand and lower prices for their exports, which breaks a lot of businesses. Two, the oil industry takes a hit; Canada exports a lot of oil, and if the price per barrel drops 10 dollars, oil provinces like Alberta lose billions. Three, and most worrying, unemployment climbs as companies lay off staff in large numbers. Some predict close to 500,000 jobs at serious risk in Ontario alone.

What retaliatory tariffs mean for your wallet

If Canada puts its own tariffs on American goods, your problems grow too. Think about how many American products you use every day. In a Canadian winter we import a lot of fruit and vegetables from the US, plus cars and parts, machinery and commercial equipment, medicines and chemicals, and electronics like the chips in your devices. Put a tariff on all of that and it can all get more expensive, because Canadian companies paying the import tariff pass that cost straight to consumers. So two problems land at once: people lose jobs, and buying power drops as essentials get pricier.

The tie to housing and construction

This is not strictly a housing story, but it touches the market hard through construction. Rising raw material costs are already one of the things slowing the market's growth, and tariffs would make that worse across the board. The Bank of Canada says all of this lowers GDP and pushes toward recession. In its best-case scenario, Canada's GDP falls 2.5 percent; if things are managed poorly, 3 percent. Canada's growth is currently 1.8 percent, second in the G7 after the US, so a drop like that turns growth negative and takes you close to a real recession. And if Canada tariffs American goods in return, GDP could fall another 2.5 percent. People also assume the government can use tariff revenue to fix the economy, but the Bank of Canada says no, it does not bring in nearly enough.

Why lower rates will not be a COVID-style boom

In a recession the Bank of Canada usually eases lending and cuts rates so both people and businesses can borrow cheaper. But there is a catch: inflation. Goods get more expensive from the tariffs while you are making money cheaper, so inflation can climb, and the Bank hates that. Some analysts argue the rate cuts will not move inflation much this time, because people have no buying power, unemployment is high, and any cash they get goes to essentials or savings. This is not COVID. Back then the government handed out subsidies and monthly payments, and people mostly kept their jobs. In this kind of downturn, with up to 500,000 jobs at risk in Ontario, there is far less affordability. Rates will fall, variable rates a lot, then fixed rates, maybe even down near the 1 to 1.5 percent of the COVID era. But will the market surge the way it did then? The experts I follow say no, because the affordability and the job security just are not there. Monetary policy alone cannot stop a tariff war. There is no magic wand, and the same is true in housing: problems that come from industry, the economy, or immigration cannot be solved with money alone.

I genuinely hope this tariff fight never takes shape and the 30-day pause keeps getting extended. If you are trying to decide what all of this means for a buying or selling plan, fill out the form at the bottom of this page or book a free consultation and we will look at your situation together. Stay well and take care.