TORONTO – A new report looking at some possible paths ahead for U.S tariffs finds that even the base case could mean a 1.5 per cent drop in long-term GDP, while a worst case could cut five per cent off growth.
The report from BMO looked at three scenarios, including a benign case that reflects current U.S. policies, which the bank figures has resulted in about a seven per cent effective tariff on Canadian goods.
The benign base case would likely mean only a moderate effect on near-term growth, while the worst-case scenario of 35 per cent tariffs on all imports from Canada — the current rate on non-CUSMA compliant goods — would likely lead to a moderate recession in the near-term as well as worsen long-term growth and inflation.
In between, a middle scenario of tariffs averaging 15 per cent, similar to other trading partners like Europe or Japan, could mean significantly slower growth in the near-term and 2.5 per cent shaved off longer term economic growth.
The GDP projections are based from the start of the year, so some loss of growth, especially for the base case, has already happened, but the report shows the broad range of possibilities still ahead.
BMO chief economist Douglas Porter says that with so many moving parts it’s hard to see a clear path ahead, but that the benign path forward with something close to current rates seems most likely.
“We call it the muddle through scenario,” said Porter.
“We do believe that something close to the average tariff on Canada is about what we’re gonna be left with.”
He said there could be some changes in industry-specific tariffs, but that change could go both ways.
“We are hopeful that one of the things that we might hear from this week’s meeting between the prime minister and the president is some sort of relief on steel tariffs,” said Porter.
“But on the other hand, it could be replaced with something else down the line because we know they have a long list of sectoral tariffs that the administration is looking at.”
This report by The Canadian Press was first published Oct. 6, 2025.
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