[Winter 2026 GPS] Canada: A Long Way To Go, But There Is Hope

In our 2025 spring newsletter, we indicated that Canada, has a golden opportunity to break free of U.S. ties and establish itself as a strong global economy backed by its rich resources. Then, in the summer of 2025, we highlighted Canada’s many challenges after Trudeau’s era of sluggish productivity. Reforms in the tax system, capital markets, and infrastructure development are much-needed.

U.S. Tariffs and Trade Uncertainty:

This has become the main obstacle for Canada. U.S. tariffs on Canadian steel, aluminum, copper, lumber, and vehicles remain high, with some rates as high as 50%. Exports of Canadian steel, aluminum, and vehicles have all declined. Steel exports are down 25%, aluminum exports are down 6%, and vehicle exports are down 5%. It remains unclear what will happen to the Canada-United States-Mexico Agreement (CUSMA/USMCA), which is scheduled for a formal review in July 2026. The Bank of Canada states that GDP will be about 1.5% lower than it would have been without U.S. tariffs. Over 70% of Canadian commodities still go to the U.S., making diversification an important but gradual process.

Household Debt and Affordability:

Over 14% of Canadians' discretionary income goes towards paying off debt, and many homeowners refinancing their mortgages in 2026 will face higher rates than when they initially borrowed. Since January 2020, the cost of essentials like food and shelter has risen by about 30%, outpacing the 25% increase in wages. This mainly affects lower-income Canadians, who must allocate a larger share of their income to basic needs.

Not everything is negative. We are now seeing Canada reaching out to other global powers such as the EU, China, India, and Japan. Furthermore, the prime minister has begun collaborating with countries like Australia and Mexico, following his Davos speech.

The Bank of Canada's rate is currently 2.25%, and it could decline to around 1.50% by year's end. Lower rates relieve the debt burden on consumers and businesses. The government is accelerating investments totalling $1 trillion in energy, AI, and critical minerals. If the CUSMA renegotiation goes well, corporate confidence might quickly bounce back, especially in Ontario.