The current trade war between Canada and the United States has been now underway since March of 2025 with the imposition of 25 percent tariffs by the United States on Canadian steel and aluminum which then saw our own retaliatory tariffs. Since then, there has been back and forth tariffing culminating in the latest onset of 50 percent U.S. tariffs on a range of Canadian goods (including toilet paper of all things) followed by our September 8th retaliation of 15, 25 and 50 percents counter tariffs on a range of U.S. products. Since then, the Americans signalled that there are some products they need from Canada more than they are willing to admit (like toilet paper) and has removed tariffs on them – road salt, cement and bottoms up everyone – toilet paper.
What the impact of the tariffs and trade disruptions have been on the Canadian economy is an important consideration and to date the Canadian economy appears to have been relatively resilient based on the latest GDP growth numbers as well as the employment numbers. In term of GDP growth, there was second quarter growth of almost 1 percent in the most recent release led in part by higher exports of all things. There seems to be some diversification of our exports underway given that trade volumes with the U.S. are flat.
As for employment, August 2026 did see a monthly drop in employment relative to July of 42,000 jobs but what is important is not month to month but more annualized numbers. Over the August 2025 to August 2026 period, employment in Canada has grown, notwithstanding the trade war. However, the composition of that employment change is interesting. Moreover, Ontario has fared better than one might have expected given its manufacturing exposure via the automobile sector.
The accompanying figure plots the percent change in employment for Canada, Ontario and Canada minus Ontario over the August 2025 to August 2026 period. At the left of the figure, employment growth is provided for total employment, goods sector employment and then service sector employment. After that, employment growth is also provided by class of worker and industry (Statistics Canada Table 14100376). To start, total employment (not seasonally adjusted) over the course of twelve months has grown by one percent in Canada – almost 213,000 jobs. Of these, 23,500 were in the goods sector while 189,400 were in the services sector. Ontario added 119,100 of these jobs with 4,700 in the goods sector and 114,400 in the services sector. The trade dispute with the Americans has certainly slowed the growth of goods sector employment but not so much the service sector. If one looks at Canada minus Ontario, total employment grew by 93,800 jobs with goods accounting for 18,800 and services 75,000 jobs.
When broken down in more detail, the results are also quite interesting. The agricultural sector is not doing as well with employment shrinking by 5 percent in Ontario and 2 percent in the rest of the country. Natural resources (fishing, hunting, mining, quarrying, oil and gas) is down nationally overall but grew by 12 percent in Ontario or 5300 jobs while it shrank by 7100 jobs in the rest of the country. It seems Ontario’s northern mining sector is finally getting some traction. Employment in utilities is down pretty much everywhere while construction employment is down in Ontario but up in the rest of the country.
Paradoxically, over this twelve month period, manufacturing employment is up in Canada by 1.5 percent nationally (28,500 jobs), 1.8 percent in Ontario (15,200 jobs) and 1.3 percent in the rest of the country (13,300 jobs) outside Ontario. Transport and warehousing employment is up everywhere but wholesale and retail trade are down. The finance, insurance and real estate sector is up in Ontario but down in the rest of the country. Then there is public administration which is down everywhere and likely reflects federal government downsizing of employment which one certainly cannot blame on tariffs. As well, education sector employment is down in Ontario but up slightly in the rest of the country while the health and social assistance sectors as well as the information culture and recreation sectors appear to have gained a lot of jobs in percent terms.
So, what is one to make of this? While despite the language of there being a “Trade War” in progress, it needs to be realized that most goods being exported and imported between Canada and the United States are not subject to tariffs and business is continuing as usual. Jobs losses are not concentrated where might one expect them to be with the losses in agriculture, education, public administration and utilities not easily attributable to tariffs. The effect on manufacturing has been muted though perhaps there has been some effect on wholesale and retail trade but certainly not transport and warehousing.
In short, things seem to be going better than expected for now. Despite the rhetoric, the trade war seems to be in its phony war phase.