2. Global trade war: Tariffs and uncertainty

Trade policy volatility and tariff brinkmanship threaten global growth.

Risk 
Since April 2025’s “Liberation Day,” U.S. tariff policy has swung wildly—threatened, applied, paused and reintroduced—creating volatility. Despite a temporary truce between the U.S. and China, trade policy uncertainty remains high. However, while the Trade Policy Uncertainty Index has declined from its recent peak, it remains far above historical norms. Political and geopolitical risks—from Supreme Court rulings to conflicts in Eastern Europe and Asia—could reignite tensions.

Impact 
Renewed tariff brinkmanship—a strategic negotiation tactic to push a situation to the “brink” of conflict— could trigger the risk of stagflation—high inflation with stagnant economic growth. This would complicate fiscal and monetary policy. Supply chains may strain as importers rush to build inventories, driving up costs. Canadian businesses should prepare contingency plans now. 

3. Failed CUSMA negotiations: Trade stability at stake

The July 2026 review could reshape North American trade and competitiveness.

Risk
The Canada–United States–Mexico Agreement (CUSMA) faces its first joint review in July 2026. Failure to renew or renegotiate the trade agreement could mean stricter U.S. rules of origin, higher tariffs and concessions on sensitive sectors, like dairy and automotive.

Impact
A failed CUSMA would undermine trade stability, increase costs and disrupt supply chains. Exporters in manufacturing, agriculture and energy would be hit hardest. Currency volatility and decreased business confidence could slow gross domestic product (GDP) growth, threaten jobs and lower wages. Global Affairs Canada estimates CUSMA secured 38,000 jobs and $6.8 billion in GDP gains—benefits at risk if the U.S. withdraws.

4. Global recession risk: Synchronized slowdown

Protectionism and eroding co-operation raise the risk of a global downturn.

Risk
Escalating trade disruptions and rising protectionism threaten global growth. Retaliatory measures from key trading partners and eroding international co-operation are destabilizing supply chains and investor confidence, raising the risk of a synchronized global recession.

Impact
Consumer spending and business investment would fall worldwide. Labour markets would also weaken, defaults rise and credit conditions tighten—creating systemic stress for governments and companies alike.

6. Globalization slowdown: Fractured world economy

Fragmented blocs and rising protectionism erode long-term growth prospects.

Risk
Decades of integration are giving way to fragmented blocs. Economic and political shocks and rising protectionism threaten global trade and investment, eroding long-term growth.

Impact
Costs for Canadian companies rise as cross-border business becomes harder. Over time, shipping and transaction costs increase, capping growth and leaving Canadians less wealthy than in a fully globalized economy.

7. U.S. recession risk: Consumer strain and credit stress

Economic vulnerabilities in the U.S. could spill into Canada.

Risk
Despite recent resilience, U.S. vulnerabilities persist:

• High tariffs driving up consumer prices
• Elevated borrowing costs
• Slowing job growth and rising layoffs
• Rising consumer debt and delinquencies

Impact
A U.S. recession would hit Canada hard, given our deep economic ties. Automotive, energy and manufacturing sectors would feel the brunt. Historically, five of seven U.S. recessions coincided with Canadian downturns—underscoring the need for vigilance.

8. Erosion of global institutions: Rules under strain

Weakening trade and finance architecture raises systemic risk for exporters.

Risk
The post-Second World War trade and finance architecture is weakening. The World Trade Organization (WTO)’s dispute settlement paralysis, stalled reform efforts and legitimacy challenges at the International Monetary Fund (IMF) and World Bank signal a shift toward ad hoc rules and power politics. Alternative lenders—such as China-led institutions—are gaining influence, while the role of the Paris Club, a group of major creditor nations that co-ordinates debt restructuring for distressed sovereigns, is diminishing. 

Impact
For Canada, marginalization of these institutions would mean higher trade uncertainty and systemic risk. Without the WTO’s enforcement mechanisms, Canadian exporters face arbitrary tariffs and non-tariff barriers. The absence of co-ordinated crisis lending and debt restructuring—historically managed by the IMF, World Bank and Paris Club—would amplify financial contagion in emerging markets, reducing demand for Canadian goods and services. In a fragmented system dominated by competing blocs, Canadian businesses must navigate divergent rules and heightened geopolitical risk.

10. Climate investment: Funding pressures and policy shifts

Capital constraints and policy changes could slow cleantech growth.

Risk
Clean technology faces tightening capital amid economic and geopolitical uncertainties. Investors are prioritizing strong economic fundamentals, making it harder for projects without clear returns to attract funding. Trade tensions and tariffs could raise costs for equipment and raw materials. Investor concerns over secure supply chains can further dampen the investment climate, while supply chain concerns add further pressure.

Impact
For Canada, limited private capital may constrain growth in climate and clean technology sectors. Reduced access to risk capital could slow innovation and adoption. Policy changes—such as the U.S. withdrawal from the Paris Climate Treaty and the rollback of finance commitments—may dampen demand for Canadian solutions.