Dropping retaliatory tariffs on the U.S. may have been a tough political decision, but it’s an unambiguous boost for the economy, according to Desjardins Group economists. Cheaper imports are expected to reduce inflation and support stronger growth.
In a new report, the firm assessed the impact of the federal government’s recent move to remove the 25% tariff on most U.S. imports (excluding steel, aluminum and certain autos), which were originally adopted in retaliation for higher U.S. tariffs.
The immediate effect is that inflation is now expected to come in weaker than previously forecast. Headline inflation is projected at 1.8% for 2026, down 0.3 percentage points from the previous forecast and below the Bank of Canada’s 2% target.
“Lower tariffs will not only slow the pace of inflation, but they should also spur stronger economic growth than previously forecasted,” the report said. Real GDP growth is now projected at 1.6% next year, an improvement of 0.2 percentage points from earlier estimates.
“And given that the removal of retaliatory tariffs should also raise the potential output of the economy, the improved growth outlook should only have a modest offsetting impact on the lower inflation outlook,” it added.
Against this backdrop, rate cuts appear more likely, as the Bank of Canada can focus less on underlying inflation and more on the trade-war impacts on the real economy.
“This reinforces our call for another 25-basis-point interest rate cut in September, and two more in the final quarter of 2025,” the report said.