Trump says US to increase tariffs on Canadian cars to 50%

Royal Bank of Canada (RBC) has assessed the new Section 338 U.S. tariffs on Canadian exports, revealing a 50% rate on goods that make up approximately 5% of Canada's total exports to the United States. While RBC maintains that these tariffs are not substantial enough to impede Canada's economic growth, they highlight the impact on industries such as plastics, electrical machinery, and wood products.

The bank emphasizes that these tariffs intensify U.S. tariff threats and disproportionately affect Quebec, British Columbia, and Ontario. Given the tariff's high rate and its exclusivity to Canada, purchasing Canadian goods would become prohibitively expensive. However, RBC suggests that there is potential for trade flows to shift within North America to mitigate these costs more than in the case of other sector-specific tariffs.

Despite the intensified trade uncertainty and recent reductions in inflation trends, RBC predicts that the Bank of Canada will not raise interest rates this year due to the localized nature of the economic headwinds. Additionally, fiscal policy is considered more effective in providing targeted relief than central bank rate adjustments.