A deal to end the punishing US-Canada trade war seems further away than ever after Donald Trump said he was ramping up levies on Canadian imports at the weekend, blasting an anti-tariff commercial recently aired in the US by the Ontario government.
Trump’s latest move appears to add a fresh 10% tariff on Canadian imports, although it’s unclear whether that’s a blanket charge or one that only applies to already tariffed goods, while the president has also stepped away from all negotiations with Canada.
The talks breakdown and trade war escalation adda a new layer of uncertainty to the Canadian economic outlook and will offer little comfort to hopeful homebuyers – particularly those working in tariff-impacted industries – waiting for some clarity on the economy before pushing ahead with a purchase.
Few observers expected tariffs to disappear with the stroke of a pen anytime soon. In a keynote address to last week’s Mortgage Professionals Canada (MPC) conference in Ottawa, Canadian Imperial Bank of Commerce (CIBC) deputy chief economist Benjamin Tal indicated that tariffs were here to stay and would remain in place long after Trump has left the White House.
That’s because they’re reaping a huge windfall for the US government, even if it’s coming at American taxpayers’ expense.
But a trade deal, even one that keeps tariffs but at a reduced level, would likely settle at least some nerves about the future of the Canadian economy and give buyers a degree of confidence that another trade war escalation isn’t ahead.
Trade deal talks crucial to a housing market recovery
Earlier this month, the Canadian Real Estate Association (CREA) highlighted a slow but steady improvement in home sales activity across the country since the tariff chaos from earlier this year settled somewhat.
It expects sales to rebound further in 2026, but indicated much depends on how talks develop on the trade front. “It’s important to reiterate that all forecasts are still subject to higher-than-normal levels of uncertainty, though maybe less now than in the first half of 2025,” the association said.
And Canada Mortgage and Housing Corporation (CMHC) has also suggested the outcome of tariff talks remains the single biggest factor impacting how the housing market performs in the months and year ahead.
Trump appeared in conciliatory mood towards Canada in recent weeks before his latest outburst, telling reporters during an Oval Office meeting with prime minister Mark Carney on October 7 that Canada would “walk away very happy” from discussions. “The people of Canada will love us again,” he said.
But the president’s ire at Ontario’s commercial, which featured negative comments made by former president Ronald Reagan about tariffs and aired during Game One of the World Series between the Toronto Blue Jays and Los Angeles Dodgers, seems to have blown out of the water any progress made between negotiators.
What the latest escalation could mean for central bank rate cuts
The new tariffs could put further strain on Canada’s already frayed economy, potentially increasing the chances of more rate cuts by the Bank of Canada in the coming months.
Plenty of housing and mortgage market watchers will be keeping a careful eye on Wednesday’s central bank announcement to see how policymakers are viewing the current inflation outlook.
The Bank is expected by most analysts to cut interest rates by 25 basis points, and CIBC’s Tal said last week it needs to lower rates even further in 2026.
“We need to cut interest rates now,” he said. “They are going to meet [in October]. I believe they will cut… and if they don’t cut, they will cut after that because they have to.”
While Bank policymakers and governor Tiff Macklem have emphasized the upside risks to inflation posed by the trade war, the latest escalation by Trump may not put too much upward pressure on the consumer price index (CPI).
That’s because Canada recently scrapped more counter-tariffs on American goods than it had initially disclosed, removing most retaliatory levies against the US except for existing steel, aluminum, and auto-sector charges.
And Carney doesn’t appear in any mood to reinstate those measures despite Trump’s latest escalation. “Canada stands ready to build on the progress that we had been making in our negotiations or discussions with our American counterparts,” he told reporters in Malaysia over the weekend.
For now, the mortgage and real estate industries can only look on and wait – again – to see if more economic turbulence weighs against sales activity and homebuyer confidence.
CMP
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