According to the latest economic data from Statistics Canada, the ongoing trade war with the United States is taking a significant toll on Canada's economy. The data underscores that Canadian prosperity is heavily dependent on its economic relationship with the US.
While Prime Minister Mark Carney has been actively seeking to diversify trade by soliciting business from non-U.S. markets—an effort that is commendable—the reality is that nearly 70% of Canada's trade is conducted with the United States. The negative impact of the trade war initiated by President Donald Trump is increasingly evident.
On an annualized basis, Canada's economy contracted by 0.1% in the first quarter of this year, far below the predicted growth of 1.5%. This contraction puts Canada into a technical recession, defined as two consecutive quarters of negative economic growth.
Economic Contraction in Three of the Last Four Quarters
Canada's economy has contracted in three of the last four quarters. Additionally, business capital investment—a key measure of economic productivity—fell by 0.7% in the first quarter of 2026, marking the fifth consecutive quarterly decline.
Some economists have disputed the claim that Canada is in an actual recession, arguing that the decrease in GDP was minimal and that preliminary findings could be revised upward. However, there is no disputing that the latest data is troubling, confirming the underlying weakness of the Canadian economy more than a year after Trump launched his global trade and tariff war.
The economic slowdown has resulted in the loss of 112,000 private sector jobs since the start of the year, pushing the unemployment rate to 6.9%, up from 6.5% in January.
Importance of the Upcoming CUSMA Review
All of this highlights the critical importance of the upcoming review of the Canada-U.S.-Mexico Agreement (CUSMA), which begins on July 1. Unlike Canada, negotiations between the U.S. and Mexico have already commenced, with U.S. Trade Representative A. Jamieson Greer warning both countries of new tariffs compared to the previously negotiated 2018 CUSMA agreement.
The continuing uncertainty surrounding the outcome of these negotiations is contributing to the economic downturn. Businesses are seeking clarity on tariff and trade issues before making investment decisions. The longer this uncertainty persists, the more detrimental it will be for Canada's economy.
