RBC analysts reviewed one year of U.S. tariff shocks on Canada. Canada’s GDP and unemployment were broadly steady, and Canada recorded its first per-capita GDP rise in three years in 2025.
Consumer confidence fell in the spring, but household spending stayed resilient. Net foreign direct investment was positive for the first time in more than a decade.
Sector And Regional Divergence
The effects were concentrated by sector and region, with uneven impacts across provinces. The analysis also points to Canada’s strong dependence on trade with the United States.
The report notes that trade disruption exposed wider weaknesses, including slow productivity growth. This can make it harder to absorb future economic shocks.
It says shifting trade away from the U.S. would require new supply chains and new infrastructure. Fiscal policy is also presented as a growing tool to support export diversification.
Canada’s latest federal budget aims to double non-U.S. exports by 2035. The budget also includes measures to support infrastructure and streamline major projects.
Positioning For Trade Diversification
Given that last year’s U.S. tariff shock created uneven damage, we see opportunities in playing the divergence between sectors. The overall economy held up in 2025, but specific industries reliant on U.S. trade are still struggling. This suggests a cautious outlook on broad Canadian equity indices, like those tracking the TSX 60.
We should consider strategies that benefit from the government’s push to diversify away from the U.S. This could involve buying call options on major Canadian rail and port infrastructure companies, which are poised to gain from the C$15 billion infrastructure bond announced to upgrade Pacific and Atlantic trade gateways. At the same time, we can look at protective puts on manufacturing exchange-traded funds (ETFs) exposed to ongoing U.S. trade friction, as recent data for February 2026 showed a 0.8% contraction in manufacturing shipments.
For the Canadian dollar, this mixed economic picture suggests continued volatility against the U.S. dollar. With the USD/CAD pair trading in a tight range for most of the first quarter, selling options strangles could be a viable strategy to collect premium from expected choppiness rather than a clear directional move. The currency is caught between a resilient domestic consumer and a weak external trade profile.
The Bank of Canada’s position also presents an opportunity, with lagging productivity being a key concern. Implied odds from overnight index swaps now show a nearly 40% chance of a rate cut by July, reflecting the underlying economic vulnerabilities. We saw a similar dynamic in 2019, where sectoral weakness eventually forced the central bank’s hand, making futures contracts betting on lower rates an increasingly attractive hedge.
