{"id":15004,"date":"2025-02-04T04:05:59","date_gmt":"2025-02-04T04:05:59","guid":{"rendered":"http:\/\/torontotribune.ca\/index.php\/2025\/02\/04\/is-a-recession-inevitable-why-tariffs-pose-worst-trade-shock-since-1930s-national\/"},"modified":"2025-02-04T04:05:59","modified_gmt":"2025-02-04T04:05:59","slug":"is-a-recession-inevitable-why-tariffs-pose-worst-trade-shock-since-1930s-national","status":"publish","type":"post","link":"https:\/\/torontotribune.ca\/index.php\/2025\/02\/04\/is-a-recession-inevitable-why-tariffs-pose-worst-trade-shock-since-1930s-national\/","title":{"rendered":"Is a recession inevitable? Why tariffs pose worst \u2018trade shock\u2019 since 1930s – National"},"content":{"rendered":"


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UPDATE AS OF FEB. 3, 2025 AT 4:59 P.M. EASTERN: Prime Minister Justin Trudeau says the U.S. tariffs on Canada will be \u201cpaused\u201d for 30 days. Read more about the announcement here<\/a>.<\/strong><\/em><\/p>\n

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U.S. President Donald Trump<\/a>\u2019s tariffs on Canada, and Canada\u2019s retaliatory measures, could be the most \u201csignificant trade shock\u201d that Canada has suffered in nearly 100 years, economists say.<\/p>\n

So does that mean a recession is inevitable?<\/p>\n

A Royal Bank of Canada report on Sunday compared the trade shocks from Trump\u2019s tariffs to the ones caused by the Smoot-Hawley tariffs of the 1930s.<\/p>\n

The Tariff Act of 1930, which created what\u2019s known as the Smoot-Hawley tariffs, was an American law that raised U.S. tariffs on a sweeping range of products being exported to the United States.<\/p>\n

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The tariffs were widely believed to have worsened the recession during the Great Depression.<\/p>\n

\u201cThis shock far surpasses the 2018 tariffs in magnitude, diminishing the value of that period as a helpful guide for the economic impact ahead,\u201d RBC chief economist Frances Donald and assistant chief economist Nathan Janzen said in a new report.<\/p>\n

\u201cFor context, in 2018, the U.S. average import tariff rose from 1.5% to roughly 3%. Under the new policy, the U.S. average tariff rate [rose] to nearly 11%, the highest average ratio since the 1940s.\u201d<\/p>\n

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\n\t\t\t\tCould Canada avoid a recession?\t\t\t<\/h2>\n<\/p><\/div>\n

Economists generally define a recession as two consecutive quarters of an economy contracting.<\/p>\n

The RBC report said Canada could avoid a full-blown recession if the tariffs are in place for no more than a few weeks.<\/p>\n

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\u201cTariffs removed within a matter of weeks are likely to create a temporary stall for Canada. However, if they extend over a matter of months (e.g. 3-6 months), Canada\u2019s recessionary risks increase rapidly,\u201d the report said.<\/p>\n

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Tu Nguyen, economist at RSM Canada, said sustained U.S. tariffs and a response from Canada could likely see the Canadian economy contract by two per cent \u2013 a sharp contrast to the projected 1.8 per cent growth rate for 2025.<\/p>\n

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She said Canada could head into a recession, including job losses and inflation.<\/p>\n

\u201c[Tariffs and counter-tariffs] would also lift inflation from the current two per cent to a 2.7 per cent headline number, as some of the increased costs from tariffs are passed onto Canadian consumers,\u201d she said.<\/p>\n

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The RBC report said sustained tariffs would mean Canada could take up to three years to recover from the effects of a recession.<\/p>\n

\u201cIf sustained, our initial analysis suggests that tariffs of this size (based on many assumptions) could wipe out Canadian growth for up to three years, with the largest impacts in the first and second years,\u201d the report said.<\/p>\n

The RBC report concurred with the Bank of Canada\u2019s findings that a 25 per cent tariff applied across the board would reduce Canadian GDP by 3.4 to 4.2 per cent.<\/p>\n

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\n\t\t\t\tCanadian manufacturing to take a hit\t\t\t<\/h2>\n<\/p><\/div>\n