Canada’s economy contracted for the first time in more than a year as U.S. tariffs and a weakening global demand triggered a sharp pullback in exports, according to a new Statistics Canada report.
The agency said real GDP dropped nearly 0.4 per cent in the second quarter of 2025 after six straight quarters of expansion.
Exports also dropped 7.5 per cent in the second quarter after the U.S. implemented tariffs on key Canadian goods like steel, aluminum, automobiles and other goods not compliant with the Canada-United States-Mexico Agreement.
“This was the largest quarterly decline since 2009, excluding the COVID-19 pandemic period,” according to the report released Monday.
The slump extended to manufacturing, wholesaling and employment, all of which posted declines or stalled growth.
“Prices for various consumer goods have been directly or indirectly affected by U.S. tariffs and Canada’s tariff countermeasures, including new cars, clothing and footwear, certain household appliances, a range of grocery items, and travel services,” according to the report.
Manufacturing and employment decline
The report states businesses which engage in cross-border trade with the U.S. are looking for mitigation strategies to deal with the tariff caused disruptions.
Fifty four per cent of manufacturers and 44 per cent of wholesalers say they have been impacted by tariffs in May.
The report also states there was no net employment growth from February to August this year.
Employment growth in the public sector has slowed this year. The pace of growth in the private sector slowed before trade tensions began and has been below two per cent for the last 17 months.
A third of businesses reported passing cost increases caused by tariffs to the customer in the last six months while two fifth of businesses say they are likely to follow suit within the next year,
