Canadian economy shrinks as U.S. tariffs hit exports and investment

August 29, 2025

RED FM News Desk

Canada’s economy contracted in the second quarter as U.S. tariffs weighed heavily on trade and business spending, Statistics Canada reported Friday.

Real gross domestic product fell 1.6 per cent on an annualized basis, reversing the two per cent growth recorded in the first quarter. Statistics Canada also revised that earlier figure down from 2.2 per cent.

The agency said real GDP also declined on a per-capita basis, marking a sharp slowdown after modest gains earlier this year.

The downturn coincided with U.S. President Donald Trump escalating tariffs on Canadian goods, particularly steel, aluminum and autos. Economists noted that many businesses had front-loaded orders in the first quarter to avoid tariffs, artificially boosting early growth and contributing to the second-quarter slowdown.

International exports of passenger cars and light trucks plunged 24.7 per cent, while shipments of industrial machinery, equipment and parts also dropped. Travel services weakened as well.

Business investment was hit hard, with spending on machinery and equipment down 9.4 per cent—the steepest decline since 2016 outside the pandemic period.

Imports also fell as Canada retaliated with counter-tariffs, discouraging U.S. firms from selling north of the border. A decline in cross-border travel by Canadians further reduced import activity.