Despite the continual onslaught of announced American tariffs and what one would expect would be a major slowing down of our economy, Statistics Canada reports the June employment numbers have exhibited a surprising resilience. In turns out employment increased by 83,000 (+0.4%) in June and the employment rate rose by 0.1 percentage points to 60.9% while the unemployment rate fell to 6.9%. For a country that is apparently undergoing the hardship of the Trump-Led War on Trade, this is not exactly an economic apocalypse.
This has of course already been noted by other economic observers such as RBC economics which has attributed the resiliency to “the USMCA, which shielded Canada from some of the harshest tariff measures—ultimately making it the least affected U.S. trade partner rather than one of the most, as was originally feared.” Despite announcement of double-digit tariff rates, the effective tariff rate on Canadian goods prior to all of the tariff chaos was 2.5 percent and is now at 4.6 percent. While not ideal, it is not the end of the world for Canadian exports to the United States.
The other thing that has been going on and is perhaps contributing to the increased resilience of the Canadian economy despite hits to sectors like aluminum and vehicle manufacturing is that Canadians themselves have been retaliating to U.S. economic actions in a pretty coherent self-organizing fashion. Without any official central direction, Canadians have been more likely to shop and travel domestically and reorient their spending away from the United States and into Canada.
For example, take travel to the United States. As noted recently by Statistics Canada “While Canadian-resident return trips from overseas countries increased 7.3% from June 2024 to 876,800 in June 2025, Canadian-resident return trips by air from the United States dropped 22.1% to 363,900.” As well, “in June 2025, the number of Canadian-resident return trips by automobile from the United States totalled 1.3 million, a steep decline (-33.1%) from the same month in 2024 … June 2025 marked the sixth consecutive month of year-over-year declines.” This is a major reorientation of travel expenditure away from the United States and back into Canada. Moreover, there is apparently an uptick in European visitors who are choosing Canada over the U.S.
And then there is the matter of domestic consumer spending away from U.S. products which American visitors to Canada have noted even if the wide swath of the American public is oblivious to this type of shift. Again, in a pretty much self-organizing fashion, many Canadians are making choices to not buy American when they can, which is a difficult activity given the plethora of American products in our stores after decades of intertwined economies. As noted in the New York Times “A recent Ipsos poll found that three-quarters of Canadians surveyed said they intend to forgo travel to the United States, while 72 percent said they will avoid buying U.S.-made goods. American brands have even jumped on the bandwagon, with companies like McDonald’s stressing their Canadian ingredients.”
The danger here to United States is that even if and when relations between the two countries go back to some semblance of “normalcy”, a disruption in patterns of behaviour is likely to have some long-term effects. For example, many Canadians have traditionally equated travel with trips to the United States because it is an interesting place to visit and convenient to access relative to even their own country. Now, that they have been given the opportunity to try something different, some of that change will remain afterwards. Combined with attempts underway to shift trade patterns away from the U.S. not only in Canada but the rest of the world, some of these shifts are going to be permanent.
In the interim, spending more Canadian dollars domestically rather than on American imports of goods and services (which includes travel) means that our marginal propensity to import from the United States is falling and the marginal propensity to consume domestically is rising. Remember your simple first year economics macro model of income determination and the expenditure multiplier with taxes and trade?
Y = A[1/(1-z)]
Where z = MPC(1-t)-m and with Y as national income or GDP, A as autonomous expenditure (exogenous consumption, investment and government spending and including exports), MPC as the marginal propensity to consume, t as the tax rate and m as the marginal propensity to import. Using this, we can construct a simple example to show what happens when the MPC goes up and m goes down.
According to my ChatGPT query, Canada’s nominal GDP is currently at about 3 trillion dollars. It suggested a marginal propensity to consume of 0.8 is what the Bank of Canada often uses in its models and that a marginal propensity to import of 0.3 is reasonable. As for the tax rate, based on total tax revenue for all three levels of government to GDP, a rate of 0.35 is reasonable. Plugging these numbers into the formula with a GDP of 3 trillion dollars, you get an expenditure multiplier of 1.28 and autonomous expenditure of 2.34 trillion dollars.
Suppose that the propensity to import goes from 0.3 to 0.25 while the marginal propensity to consume domestically goes up to 0.85. The value of the multiplier goes up to 1.43 and given the autonomous spending of 2.34 trillion, GDP now rises to 3.36 trillion dollars – an increase in GDP of over 11 percent. Naturally, rising economic output should be accompanied with a fall in the unemployment rate. It should also be noted that our exports to the United States (which is in the autonomous spending component) have been taking a hit so this would somewhat counter any rise in GDP from the effects of increased domestic spending.
My point is that lowering our marginal propensity to import and redirecting it towards consumption of domestic items is likely going to have an effect that at least partially counters the drop in our exports and therefore helps stabilize the Canadian economy during the impact of the tariff and trade dispute with the United States. The extent to which this may or may not be happening is of course an empirical question but the evidence to date suggests that Canada’s economy has been more resilient in the face of tariffs than expected meaning that there may indeed be such an effect underway. The clearest evidence is that tariff war or not, there is no recession yet.
Even more important, this resilience is not the result of direct government actions, but a result built on the responses of individual Canadians. It really is the most effective response of all.
