Some analysts see the announcement of a possible 50% U.S. tariff on Canadian goods this week mainly as a pressure tactic to get Canada to the negotiating table on US terms and soon, but BMO Economics wrote in a note that it isn't as confident.
"While we lean to the view that these tariffs ultimately will not be imposed, we certainly can't rule it out-woe to those who have dismissed earlier threats as mere bluster," said Chief Economist Douglas Porter.
Porter said a 50% tariff would hit British Columbia, Quebec and Ontario the hardest. If maintained, the taxes could shave off 0.5% of national GDP, he estimated.
A spiraling Middle East conflict has also pushed up oil prices, which will "almost assuredly" push headline inflation back above 3% in coming months, and with it, the possibility of interest-rate hikes. However, the Bank of Canada had also previously stated that a serious flare-up in the trade war could prompt rate cuts, Porter noted.
"Our view is that the trade trauma will persist, in one form or another, and that the Bank is much more likely to stay on hold, especially with core inflation now below the 2% target for the first time since 2020," he said.