Canada’s trade fight with the United States is increasingly showing up far from negotiating rooms. It is appearing in factory schedules, hiring plans and investment decisions across some of the country’s most export-dependent industries. RSM Canada has repeatedly identified manufacturing, particularly automotive production, as unusually vulnerable because so much Canadian output ultimately depends on American customers.
There is an important distinction in the growth numbers. An earlier RSM tariff scenario projected Canadian GDP growth of just 0.7% in 2026. RSM’s later full-year outlook raised that forecast to 1.4%, while reporting that the economy’s recent annualized growth pace had fallen below 1%. With another round of U.S. tariffs now in force, the broader warning remains: prolonged trade disruption can turn an industrial problem into a national growth problem.
RSM’s Sub-1% Warning Comes With an Important Timeline
RSM’s warnings about sub-1% growth emerged when economists were trying to quantify how a sustained tariff confrontation could damage Canada’s productive capacity. Economist Tu Nguyen earlier estimated that annual GDP growth could fall to about 0.7% in 2026 under a tariff-heavy outlook. The reasoning was not simply that exports would become more expensive. Tariffs can discourage production, delay capital investment, weaken hiring and reduce the amount of output the economy is capable of generating over time. Those effects become particularly important in Canada because so much industrial capacity has been designed around relatively frictionless access to the American market.
RSM’s outlook subsequently became somewhat less pessimistic. Its later 2026 forecast called for 1.4% full-year growth, supported by household consumption and investment. Yet the same report said Canada’s recent real-GDP growth rate had slipped below 1% on an annualized basis during the summer and described trade tensions as a continuing drag on employment, prices and output. After the latest U.S.-Canada negotiations collapsed, RSM said new 50% tariffs affecting roughly $28 billion in Canadian exports had injected another layer of uncertainty into business planning. That makes the direction of the risk at least as important as any single forecast number.
Auto Jobs Sit Near the Sharpest Edge of the Trade Dispute
Few Canadian industries illustrate exposure to the American economy as clearly as vehicle manufacturing. RSM previously estimated that roughly 68% of automotive manufacturing jobs depended on U.S. demand. More detailed Statistics Canada work using 2024 data found an even greater concentration for automobile and light-duty vehicle assembly: approximately 76.4% of payroll jobs in that industry were supported by American demand. That represented about 27,000 assembly jobs directly linked to vehicles ultimately purchased south of the border. Such dependence was built over decades of continental integration rather than through a short-term business strategy.
The vulnerability extends beyond final assembly plants. Statistics Canada reported that employment in motor-vehicle-parts manufacturing fell 9.3% between December 2024 and December 2025, while employment at motor-vehicle manufacturers declined 1.3%. More broadly, Canadian manufacturing lost tens of thousands of workers over that period. When tariffs reduce orders for an assembly plant, the effects can move quickly through stamping operations, seat manufacturers, plastics suppliers, logistics companies and machine shops. A production slowdown in one large plant therefore has consequences extending well beyond the workers whose employer’s name appears on the vehicle badge.
Integrated Supply Chains Can Turn a Tariff Into a Repeated Cost
North American auto production was deliberately built around components moving back and forth across the border. RSM has noted that a vehicle or its components can cross the Canada-U.S. boundary as many as eight times before final assembly. Engines, transmissions, electronics, castings and other components may be produced in one country, incorporated into a larger system in another and then shipped across the border again. That model made economic sense when trade barriers were low. Persistent tariffs change the calculation because every additional border movement can become another source of expense, paperwork or uncertainty.
Statistics Canada’s broader manufacturing data show how deeply the two economies are intertwined. Canadian manufacturers shipped about $324 billion of goods to the United States in 2024, and more than one-quarter of the value of those shipments consisted of embedded imports that had originally come from the United States. This means tariffs are not simply a tax on an isolated Canadian product competing with an American equivalent. They can raise costs inside a shared production system. RSM has consequently warned companies to model alternative supply chains, reconsider production footprints and prepare pricing strategies for a trade environment that may remain more expensive than businesses became accustomed to under continental free trade.
Southern Ontario Has More to Lose Than the National Numbers Suggest
National employment figures can obscure how concentrated automotive risk is geographically. Statistics Canada found that auto manufacturing workers were heavily clustered in southern Ontario. In early 2025, the Toronto economic region accounted for 27.7% of Canadian auto workers, Kitchener-Waterloo-Barrie for 19.8% and Windsor-Sarnia for 14.8%. In Windsor-Sarnia alone, automotive manufacturing represented 38.3% of manufacturing employment and 7.3% of all employment. For communities built around assembly plants and supplier networks, trade policy can therefore affect the local economy much faster than national statistics might suggest.
There were already signs of that vulnerability before the latest escalation. Statistics Canada reported that 16.4% of Windsor-Sarnia employment in 2024 was in industries dependent on U.S. demand for Canadian exports. By the third quarter of 2025, the region’s unemployment rate had reached 10%, up 1.7 percentage points from a year earlier. Tariffs were not the only force influencing those numbers—retooling, production schedules and other economic conditions also matter—but they add another challenge for an already exposed industrial corridor. When a supplier cuts a shift, the financial effect can spread to restaurants, contractors, retailers and other local businesses whose customers rely on manufacturing paycheques.
Weak Growth Leaves Policymakers With Fewer Easy Options
Canada entered the latest escalation without much economic momentum to spare. The Bank of Canada estimated that GDP growth averaged roughly 1% during the first half of 2026, after activity stalled in the first quarter. The central bank said output had been weak and volatile since U.S. tariffs were introduced in early 2025, while business investment, exports and housing had all been affected by elevated uncertainty. Labour conditions remained soft as well, with unemployment generally fluctuating between about 6.5% and 7%. These are not recession-level conditions by themselves, but they leave the economy more sensitive to another external shock.
Monetary policy cannot neatly solve a trade disruption. The Bank of Canada held its policy rate at 2.25% in July and noted that tariff uncertainty could weaken investment and household spending if it persisted. Yet tariffs can also raise business costs and consumer prices, complicating the case for aggressive interest-rate reductions. RSM has made a similar point: monetary authorities can lower borrowing costs, but they cannot restore lost export markets or make tariffs disappear. Fiscal programs can cushion workers and companies, although those measures also cannot permanently substitute for commercially viable access to customers.
Diversification Offers Protection, but the Auto Industry Cannot Pivot Overnight
The obvious long-term response is to make Canada less dependent on a single export market, but the starting point is daunting. Statistics Canada reported that more than 93% of Canadian motor-vehicle exports went to the United States in 2025. Shipments of vehicles to the U.S. fell 9.6% that year, while exports to other countries increased 14.6%. The non-U.S. increase demonstrates that diversification is possible, but it came from a much smaller base. An assembly plant built around North American regulations, logistics and dealer networks cannot simply redirect hundreds of thousands of vehicles overseas when tariff conditions change.
RSM is consequently recommending a broader approach rather than a single quick fix. Canadian companies can explore new markets, diversify suppliers, model the consequences of different tariff rates and prioritize investments that make production more flexible. Governments can pursue new trade agreements and infrastructure that makes access to overseas markets easier. Those strategies may strengthen the economy over time, but the immediate challenge remains the United States. For Canadian auto workers, the central question is whether companies can preserve enough North American production while that longer transition unfolds. The latest tariff escalation makes that balance more difficult—and more urgent.
