Is a Recession Coming?

With the US trade-war in play for a few months now, how likely is a recession in Canada?
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While there is a lot of uncertainty about what the President of the United States will do, there is little uncertainty that the longer tariffs are in place, threats of tariffs are being made, or trade talks are underway, the bigger the impact will be to the North American, and potentially, global economy. 

In fact, economists agree that economic growth was already slowing in Q1 2025 due to the threat of tariffs over those few months, as outlined by RBC’s chief economist Francis Donald in their March 4, 2025 article “US Tariffs on Canada Take Effect: What is the State of Play?”

The Bank of Canada also does a great job of explaining how a recession would unfold due to tariffs, in their January 2025 article “Evaluating the potential impacts of US tariffs”.

The quick and simple explanation is that any tariffs implemented across a broad swath of products will result in increasing prices in most parts of the economy, which will ultimately be reflected in the prices of most products and services that consumers buy. See our April 23 video and article titled “Will Tariffs Silently Eat Your Profits?”

This “supply shock’ type of inflation usually reduces demand in an economy, in contrast to the more common inflation that results from rapid economic growth which reflects increased demand. 

As well, ongoing uncertainty around tariffs and trade agreements are causing businesses to delay investment decisions. 

Both of these dynamics slow down the economy, reducing demand on average across the economy, and increasing unemployment, which further reduces demand. Other factors, like exchange rates and interest rates somewhat mitigate or exacerbate these effects.

Note that both the Bank of Canada and RBC acknowledge that there is no precedent for the level and breadth of tariffs that have been implemented or are being considered. The last time there was anything resembling this was in the 1930s. 

Therefore, both the Bank of Canada and RBC acknowledge that their models may be significantly underestimating the magnitude of the economic downturn that could play out.

As Jim Collins discovered in his research for the best-selling business book Good to Great, “Productive change begins when you confront the brutal facts. Every good-to-great company embraced what we came to call ‘The Stockdale Paradox’: you must maintain unwavering faith that you can and will prevail in the end, regardless of the difficulties, and at the same time, have the discipline to confront the most brutal facts of your current reality, whatever they might be.”

The brutal facts are that economic growth has already slowed, and while we don’t know for sure what will happen, one very real possibility is a significant economic slowdown.

So, how can a small to mid-size prairie-based company CEO plan for a potential downturn when the level, breadth and duration of the trade war is unknown and the extent of that downturn is highly unpredictable.
Enter scenario planning. See next week’s article where I’ll cover how to create a scenario plan to be prepared to take calm, rational action regardless of what happens.


For other ways to navigate these challenging times with confidence, get the free complete Trade-War Success Guide for Small to Mid-Size Companies below.

Access Your Trade War Success Guide

If you are a prairie CEO who wants to grow a thriving company more quickly, more easily and with less stress and headache, please contact me here.

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