The latest U.S. tariffs on Canadian goods have created an uncomfortable economic contradiction. For individual manufacturers caught on Washington’s tariff lists, the disruption can be enormous. Across Canada as a whole, however, RBC Economics estimates the direct exposure is much smaller.
RBC calculates that roughly 0.4% of Canada’s GDP and employment supports U.S. demand for products covered by the latest tariff measures. That does not mean Canada is about to lose 0.4% of its economy or workforce. Some production could find Canadian customers or alternative export markets, while government assistance could soften the impact on affected employers. The more important question is how a relatively small national exposure can translate into much larger problems for particular factories, industries and communities.
What RBC’s 0.4% Figure Actually Measures
RBC’s estimate is based on the Canadian value added associated with goods being sold into the United States that appear on the new tariff lists. The bank used 2024 value-added export data, matched tariff classifications with Canadian industries and then estimated the production and employment directly supported by those exports. Its conclusion is that approximately 0.4% of Canadian GDP and jobs are directly exposed. Put another way, that represents about one out of every 250 dollars of economic activity and one out of every 250 jobs, rather than a broad threat to every corner of the economy.
The distinction between “exposed” and “lost” is crucial. A tariff does not automatically eliminate the Canadian production connected to a U.S. customer. An exporter may lower margins, change pricing, redirect shipments, find another foreign customer or sell more at home. RBC explicitly cautions that not all the production and employment represented by its 0.4% figure will disappear. The estimate is therefore better understood as a map of where the immediate economic vulnerability sits, rather than a prediction of the final damage.
The Tariff List Is Narrow Nationally but Painful for Those Caught in It
The latest Section 338 measures originally imposed a 50% tariff on approximately $27.6 billion worth of Canadian goods beginning August 22. Products affected include plastics, furniture, information and communications technology products, electronics, paper goods, industrial machinery, wood products, textiles, apparel and sporting equipment. Unlike many Canadian products moving south under normal Canada-U.S.-Mexico Agreement rules, goods targeted by the Section 338 measures do not receive a CUSMA exemption from those specific duties.
RBC estimates the measures affect roughly 5% of Canadian exports to the United States. That helps explain why the bank sees the national effect as relatively contained even though the tariff rate itself is severe. The list has also evolved. In September, Washington added about 110 product codes while removing roughly 10 others, changes RBC said left the overall dollar value affected broadly similar. Separate import bans covering 68 already-targeted alcohol, dairy and motorcycle product classifications subsequently took effect on September 29. For businesses inside those categories, a nationally small percentage offers little comfort.
Some Manufacturing Industries Face Exposure Around 20%
National averages conceal the most difficult part of the story. RBC’s modelling found that approximately 20% of production and employment could be exposed in certain targeted manufacturing industries. The bank highlighted apparel manufacturing, leather and allied products, electrical equipment and appliance manufacturing, and textile and textile-mill production as areas where dependence on affected U.S. demand is dramatically greater than the 0.4% economy-wide figure.
That difference matters in communities built around specialized manufacturing. A Canadian company producing electrical equipment for U.S. customers cannot necessarily replace years of established sales relationships by finding new buyers within weeks. Machinery, production processes and worker skills are often designed around specific products and customers. The geographic impact can therefore become concentrated as well. A tariff responsible for only a fraction of national GDP may still translate into reduced shifts, delayed investment or layoffs at an individual plant. RBC has repeatedly described the current tariff measures as targeted rather than economy-wide: manageable at the national level, but potentially significant for the businesses and workers directly in their path.
Labour Data Are Showing Why the Impact Needs to Be Watched Carefully
Canada’s August Labour Force Survey offered an early glimpse of how trade-dependent industries have been performing, although it came too soon to measure the full effect of tariffs introduced on August 22. Statistics Canada found that over the 12 months ending in August, workers in industries dependent on U.S. export demand experienced an average layoff rate of 0.9%, compared with 0.7% in other industries. That gap predates the newest Section 338 measures and therefore cannot simply be blamed on them, but it illustrates the existing vulnerability of export-oriented employment.
Total Canadian employment declined by 42,000 in August, including a 36,000 drop in full-time work. RBC noted that the latest tariffs arrived too late in the month to have significantly influenced those figures, and most of the employment decline occurred in services rather than goods-producing industries. The next important test will be September’s employment report, the first covering a complete month after the tariffs took effect. RBC currently forecasts a modest 5,000-job increase, meaning the bank expects trade pressure to slow labour-market momentum rather than trigger a nationwide employment reversal.
Canada Is Already Selling More Goods Outside the United States
Canada’s trade numbers offer evidence that exporters can expand beyond the American market, although the data should not be mistaken for proof that tariff-hit companies can easily replace their U.S. customers. In July, before the latest Section 338 tariffs took effect, merchandise exports to the United States fell 6.6%. Exports to countries other than the United States moved in the opposite direction, rising 7.4% to a record $25.6 billion. Non-U.S. destinations accounted for 33.7% of Canadian exports that month.
Much of July’s shift reflected specific commodities and market conditions. Statistics Canada attributed the U.S. decline largely to lower crude-oil and gold shipments, while higher sales to markets including the Netherlands, China and Germany helped lift non-U.S. exports. That means the numbers cannot be presented as a direct response to the latest tariffs. They do, however, show that Canada’s export economy is capable of finding substantial demand elsewhere. The challenge is that the manufacturers covered by Section 338 tend to be unusually dependent on American customers, making diversification considerably harder for them than for Canada’s exporters as a whole.
Domestic Canadian Buyers Could Replace Part of Lost U.S. Demand
One of the more important details in RBC’s analysis is that Canada is actually a net importer of the types of products appearing on the Section 338 lists. RBC estimates that about 80% of Canadian exports of those products went to the United States in 2025, showing how concentrated the export side of the business remains. At the same time, Canadian companies and consumers continue to purchase significant quantities of similar products from abroad.
That creates a potential pressure valve. If a Canadian manufacturer loses U.S. orders while another Canadian business is importing a comparable product, there may be an opportunity to replace some foreign supply with domestic production. RBC argues that domestic substitution gives these industries more room to adapt than some previously targeted sectors such as autos, metals and lumber. It will not happen automatically. Price, specifications, capacity, contracts and supply-chain relationships all matter, and a Canadian producer designed around a particular American customer may not be an immediate match for domestic buyers. Still, even partial substitution would mean the 0.4% exposed figure does not translate directly into lost output.
Ottawa Is Spending Billions to Keep a Targeted Shock From Spreading
The federal response is designed partly around that same principle: keep companies operating long enough to adapt rather than allowing a trade disruption to immediately become permanent lost capacity. Ottawa announced $7.5 billion in new and enhanced assistance for businesses and workers affected by U.S. tariffs. Measures include additional funding for the Regional Tariff Response Initiative, a $2-billion Canada Strong Diversification Fund, $500 million in new Business Development Bank of Canada liquidity support and $3.5 billion in rapid-response supports for workers and employers.
Canada has also imposed counter-tariffs on U.S. goods, with rates of 15%, 25% and 50% across targeted products. The initial package covered approximately $27.6 billion in U.S. imports, although tariff lists and measures have subsequently been adjusted. Government assistance cannot recreate a lost customer, but liquidity can matter enormously for a manufacturer suddenly facing weaker orders. A company that keeps its skilled workforce, finances new equipment or develops another market has more options than one forced into immediate layoffs or closure. RBC estimates the $7.5-billion support package itself is equivalent to roughly 0.2% of nominal GDP.
The Bigger Economic Risk Is What Happens if the Trade Fight Expands
For now, RBC continues to characterize the Section 338 measures as a concentrated economic shock rather than something large enough to overturn its broader Canadian outlook. Real GDP was essentially unchanged in July after stronger gains earlier in the spring and summer, while Statistics Canada’s preliminary estimate pointed to a 0.2% increase in August. RBC has said it saw little evidence in the August indicators of a major economy-wide contraction immediately after the latest tariffs were introduced.
That is why the 0.4% number is important but incomplete. The existing tariff lists affect a relatively small portion of Canada’s overall economic activity, yet the consequences can be severe for targeted manufacturers. The larger danger would be escalation into measures covering a much greater share of Canada-U.S. commerce. Canada and the United States remain deeply integrated through manufacturing, energy and supply chains, so a broader expansion would change the arithmetic quickly. For now, RBC’s analysis suggests the economic story is less about a nationwide tariff shock than a collection of highly concentrated disruptions whose ultimate cost will depend on diversification, domestic demand, government support and what Washington does next.
