IDEAS home Printed from https://ideas.repec.org/p/cir/circah/2025pr-04.html
   My bibliography  Save this paper

Macroeconomic Impacts of a Canada-U.S. Tariff War

Author

Listed:
  • Julien Martin
  • Kevin Moran
  • Dalibor Stevanovic

Abstract

We use a vector autoregressive (VAR) model to produce macroeconomic forecasts conditional on two trade war scenarios between the United States and Canada. The first scenario examines the impact of tariff imposition on Canadian exports to the United States, while the second scenario incorporates the effect of Canadian retaliatory tariffs on imports from the United States. Our results show that these trade tensions would have significant consequences on the Canadian economy, with notable declines in GDP and employment. The analysis highlights a more pronounced contraction when imports are also affected, emphasizing the amplifying effects of retaliatory measures. In the trade war scenario with retaliatory tariffs, the model predicts a GDP decline of 4.2%, corresponding to the loss of approximately 700,000 jobs in Canada. Furthermore, the model interprets these scenarios as negative demand shocks for the Canadian economy, leading to deflationary pressures and an adjustment of interest rates by the Bank of Canada. These results illustrate the relevance of risk scenarios in the analysis of economic shocks and their usefulness for economic policy design.

Suggested Citation

  • Julien Martin & Kevin Moran & Dalibor Stevanovic, 2025. "Macroeconomic Impacts of a Canada-U.S. Tariff War," CIRANO Papers 2025pr-04, CIRANO.
  • Handle: RePEc:cir:circah:2025pr-04
    as

    Download full text from publisher

    File URL: https://cirano.qc.ca/files/publications/2025PR-04.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Economic forecasting; trade war; risk scenarios; conditional forecasts; VAR;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cir:circah:2025pr-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Webmaster (email available below). General contact details of provider: https://edirc.repec.org/data/ciranca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.