Tariff Exposure and Employment Change in Canadian CMAs: A Crisis Averted?

 

Well, we are now nearly six months into regime change in American foreign and trade policy and the subsequent the trade war and it is well worth seeing what the impact of the trade chaos and disruption has been on employment growth in Canadian cities since January.  Early in 2025, there was a highly publicized report by the Canadian Chamber of Commerce that ranked Canadian CMAs by their exposure and vulnerability to tariffs based on the trade component of their economies.  According to the report, the most tariff exposed cities – and likely to face high economic costs as a result – were Saint John, NB followed by Calgary, Windsor, Kitchener-Cambridge-Waterloo and Brantford Ontario.  Also high on the list after these five were Guelph, Saguenay and Hamilton. At the bottom – the least exposed was Sudbury followed by Kamloops, Nanaimo, Winnipeg and Regina. 

So, how has employment growth in these cities fared since January of 2025?  Figure 1 plots ranked data for Canadian CMAs obtained from Statistics Canada and used to calculate the percent growth in employment from January 2025 to July 2025 (using three-month moving average seasonally adjusted data).  A couple of notes. First, Prince Edward Island is included in Figure 1 treating the small island province as a CMA. It is not in subsequent figures. Second, Belleville-Quinte is not included as the employment growth over these six months came out to 90 percent and the official note mentioned there was a small sample issue and to use caution in interpreting – so out it went. There were small sample issues noted for several other CMAs, but they were retained as the percentage changes did not seem as extreme as Belleville. 

 

 

Figure 1 shows that Canada despite the trade war saw some employment growth going from 20,912,00 jobs in January 2025 to 21,019,900 jobs by July 2025 – an increase of half a percent.  Percent growth in employment was greatest in Red Deer (10.4 percent), followed by Hamilton (8.1 percent), Nanaimo (6.3 percent), Saint John New Brunswick (6 percent), Kamloops (5.8 percent) and Sudbury (5.8 percent).  Of these 41 CMAs, well over half – 25 of them – saw their employment grow since January 2025.  The remainder all saw their employment shrink to varying degrees with the worst hit being Windsor (-5.2 percent), Trios-Rivieres (-4.6 percent), Saguenay (-3.9 percent), Kelowna (-3.2 percent) and Kingston (-3 percent). 

 

 

Based on what were projected to be the worst hit cities because of their tariff exposure, it appears that there are some surprising anomalies.  For comparison purposes, Figure 2 plots the CMAs ranked from highest (most exposed) to lowest (least exposed) based on the February 2025 Canadian Chamber of Commerce study and ranking. Saint John, NB was ranked most exposed and yet at 6 percent growth saw the fourth highest gain in employment across Canada’s CMAs.  Calgary was ranked second most exposed but at 1.2 percent employment growth (well above the national performance) ranked 15^th highest in terms of CMA employment performance.  Most interesting of all is Hamilton, Ontario where there has been much gnashing of teeth and wailing about the demise of steel and its impact on the local economy.  Between January 2025 and July 2025, Hamilton went from 421,3000 jobs to 455,600 jobs – an increase of 34,300 jobs or 8.1 percent growth in employment.  Hamilton was ranked 8^th highest in terms of tariff exposure leading to  the expectation it would be nearer the bottom of any CMA employment growth and yet here we are at essentially first place in the country among major cities (because Red Deer’s numbers are also problematic given the small size of the sample apparently).

Now, at the same time, there are some cities where their negative employment growth has matched expectations given their tariff exposure ranking.  Windsor was ranked third highest in terms of tariff exposure and indeed has fared the worst of all the CMAs.  Trois Rivieres and Saguenay also were highly exposed to tariffs and in both cases are also at the bottom in terms of employment growth.  Sudbury, on the other hand was ranked least tariff exposed of all the CMAs and to expectations, its employment growth has been quite good ranking 6^th highest in the country.  

What this all suggests is that the impact of the trade war and tariffs has probably been more complex and variable on Canada’s assorted economies than one might have expected based either on resilience or local responses as well as other activities which may have taken up the slack.  Hamilton, for example, seems rather anomalous but the reality is that it has a large educational and medical sector and has become a major transport and logistics hub both due to cargo through its airport as well as the location of a large new Amazon distribution centre there. 

 

 

 

The relationship between tariff exposure and employment growth across these CMAs is further explored in the two remaining figures.  Figure 3 is a radar plot of ranked CMA employment against the tariff exposure index, and some very large divergences are obvious.  Saint John ranks quite high in terms of employment growth but there is an extremely large tariff exposure spike associated with it.  Calgary also is approximately in the top third of employment growth but also has a rather large tariff exposure spike.  Figure 4 does a scatterplot with trend charting the relationship between employment growth and the tariff exposure index.  Greater tariff exposure is indeed related to lower employment growth on average but there is a lot of variation around the trend.

All in all, some cities have done much better than one might have expected, some have done worse, and some have been bang-on.  The factors accounting for this variable performance are probably as numerous and unique as the performance differences and greatly influenced by local economic conditions and responses.

The Canada-U.S. Trade War: Why No Recession Yet?

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.

 

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Coronavirus shockwaves felt around the world economy

— March 3, 2020 

The recent economic blows to economies around the world resulting from COVID-19, the disease caused by the new coronavirus, raise the spectre of a supply-side shock vaguely reminiscent of the oil price shocks of the 1970s.
Back then, we saw a global supply-side shock due to a quadrupling of oil prices in 1973 that set off a persistent pattern of lower growth of real GDP and productivity accompanied by rising inflation, high interest rates and higher unemployment. It was also marked by large deficits and debt accumulation that in Canada was not dealt with until the 1990s.
For Canada, this era of economic stagnation was in marked contrast to the previous boom era. For example, from 1945 to 1973, real GDP growth and the unemployment rate both averaged 4.5 per cent annually, the inflation rate averaged 3.4 per cent, and the Bank of Canada rate, 3.6 per cent.
From 1973 to 1996, Canadian real GDP growth averaged 3.1 per cent, unemployment averaged 8.9 per cent, inflation, 6.1 per cent and the bank rate, 9.4 per cent. The resulting fiscal tumult saw an enormous gap develop between federal revenue and spending, which saw the deficit rise from $2.2 billion in 1973 to a peak of $39 billion in 1992 before declining to $8.7 billion in 1996 in the wake of the federal program review, the 1995 budget and economic recovery.
Of course, right now the world is not experiencing a cost-side supply shock like that of the energy crisis. However, COVID-19 seems to be sparking a major shutdown of employment and production in the harder-affected countries such as China and Italy.
While demand for many activities is down, if aggregate supply shifts left (faster than aggregate demand shifts left), there will be both an output drop and rising price levels.
The threat of disease spread and associated periods of quarantine has also generated a demand for certain goods with store shelves emptying while supply chains are being disrupted. A reduction in supply of goods and services accompanied by a surge in demand can also lead to an increase in prices—a cost shock—that ultimately could even spark a new round of inflation.
Indeed, the policy response in such a situation becomes problematic. Lowering interest rates or boosting government fiscal stimulus could be all for naught if people aren’t buying. As the saying goes, you can lead a horse to water but you can’t make it drink—especially if it does not want to go outside.
Of course, it’s still early days and a bout of good news about COVID-19 containment, or perhaps the development of a rapid treatment or vaccine, can rapidly turn this situation around. Still, we are in new territory when it comes to the world economy being in a fluid and complicated situation no one appears to have foreseen.
While taking health precautions is important, remaining calm is also necessary given the economic impact of people’s decisions on a global economic scale. A supply-shock recession combined with shrinking aggregate demand would be a new one for the economics textbooks.