WITH
creating and increasing uncertainty for businesses and consumers, Canada-United States
This has caused a widespread “slowdown” at several touchpoints in Canada's economy, according to the author of a new report.
“If I had to highlight one overall theme, it is obviously uncertainty and what businesses and households are doing to mitigate those challenges caused by uncertainty,” Guy Gellatly, chief economic adviser at Statistics Canada, said of the report, which highlights key economic developments since the start of the year.
Gellatly said the report compiled “major implications”
and U.S. trade policy across several categories, including business investment, imports and exports, economic growth, consumer spending and
. Here's a snapshot of what's happening in three key areas.
Canadian business seeks to move away from US dependence
While economic growth in the first quarter was supported by a 1.4 percent increase in export volumes despite increasing tariff threats, export volumes “fell” by 7.5 percent in the second quarter, the report said. This was the largest decline since 2009, excluding the COVID-19 pandemic. Real gross domestic product contracted 0.4 percent after six quarters of growth, and business productivity fell one percent.
The American market is critical to many Canadian businesses: last year, 76 percent of Canada's merchandise exports went to the United States. The slowdown in trade between Canada and the United States this year has “acutely affected Canadian producers, who rely heavily on U.S. demand,” the report said.
However, Statistics Canada's survey of business conditions for the third quarter of 2025 shows “greater resilience and adaptability,” Gellatly said. Over the next 12 months, 15.8% of businesses plan to increase the number of domestic suppliers, 14.2% plan to seek alternative suppliers outside the US, and 5.6% plan to seek alternative customers outside the US.
“It's not that businesses are standing still. They're working as hard as they can to solve these problems in real time,” Gellatly said. “It’s the kind of activity that often doesn’t necessarily make the headlines.”
Households continue to spend even as tariffs hit prices
Despite growing uncertainty, consumer consumption remains fairly resilient as retail spending has increased for the past five consecutive quarters. Increased household spending driven by new car purchases partially mitigated the decline in trade and business investment in the first and second quarters of 2025, the report said.
“It's certainly interesting to highlight that (households) have remained so stable and (are) one of the factors that has really supported growth in this difficult second quarter,” Gellatly said.
This is despite consumers seeing higher prices. A quarter of Canadian businesses reported in the third quarter that they had increased costs due to tariffs on their customers over the past six months, according to the agency's Business Conditions Survey. Meanwhile, 39 percent said they were very or somewhat likely to pass on costs to their customers over the next 12 months.
The report said the tariffs “directly and indirectly affected” prices of goods including new cars, clothing and footwear, certain household appliances, some grocery items and travel services. However, Gellatly said it is difficult to gauge the overall impact of the trade war by looking at the consumer price index for all goods.
“It doesn't look like you're seeing large aggregate price changes that can be clearly attributed to tariffs,” he said.
The labor market is cooling as businesses take a hiring pause
Tariffs also impact Canadian jobs. “While layoff rates remain comparable to levels seen before the trade dispute, hiring intentions have weakened as many unemployed workers struggle to find work,” the report said.
Canada
In September, the rate was 7.1 percent, the highest since May 2016, excluding the COVID-19 pandemic. Employment grew just 0.1 percent in the first nine months of 2025, compared with growth of one percent in the last nine months of 2024, the report said.
Overall, Canada experienced zero net employment between February and August.
“Obviously there's a lot of turnover behind it, so you've had gains and losses,” Gellatly said. “But overall, when you add it all up, you don’t see any net increase in employment over this period.”
The agency's Business Conditions Survey for the third quarter of 2025 found that just over half of Canadian businesses expect to be able to maintain current staffing levels over the next year or longer if the current rate environment continues.
“What does uncertainty do? It tends to keep you stuck in terms of decision-making, and that's why a lot of people are calling for resolution or clarity on a lot of these issues as quickly as possible,” Gellatly said.
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