Mortgage Blog
How Trump's Tariffs Could Impact Mortgage Rates in Canada
March 6, 2025 | Posted by: Sarabjit Dhuna
The impact of Trump's tariffs on mortgage rates in Canada could be indirect but significant, given the interconnectedness of global trade, financial markets, and economic policies. Here are several ways Trump's tariffs could potentially influence Canadian mortgage rates:
1. Impact on the Canadian Economy
- Trade Tensions and Economic Growth: If Trump's tariffs target Canadian goods or if trade relations worsen, it could have a negative effect on Canada's economy. A slowdown in economic growth, particularly in key sectors like manufacturing and natural resources, could reduce investor confidence in the Canadian economy. This could lead to higher volatility in financial markets, which in turn might push up interest rates.
- Lower Demand for Canadian Exports: If U.S. tariffs reduce demand for Canadian exports, it could lead to a weaker Canadian dollar. A weaker currency often leads to higher import costs, which could result in inflationary pressures. In response, the Bank of Canada might raise interest rates to combat inflation, indirectly affecting mortgage rates.
2. Global Trade and Supply Chain Effects
- Global Trade Disruption: Trump's tariffs on Chinese goods or other international markets could disrupt global supply chains. If these disruptions affect industries in Canada, it might increase production costs for Canadian businesses. Higher costs for goods and services could lead to inflation, prompting the Bank of Canada to increase rates to maintain price stability, which could raise mortgage rates.
- Commodity Prices: The tariffs could affect global commodity prices, which are a key driver of the Canadian economy. For example, if the U.S. tariffs disrupt oil or lumber exports, the price of these commodities could fluctuate. These fluctuations might influence the Canadian economy's overall health, potentially impacting inflation and mortgage rates.
3. Investor Sentiment and Bond Markets
- Interest Rate Differentials: If Trump's tariffs cause significant uncertainty in the U.S. economy, the Federal Reserve might lower interest rates to stimulate growth. In response, the Bank of Canada might adjust its rates to maintain the interest rate differential between the two countries. A narrowing gap could affect the attractiveness of Canadian bonds to investors, which might influence Canadian mortgage rates.
- Flight to Safety: In times of global economic uncertainty, investors may seek safer assets, such as government bonds. If investors flock to U.S. or Canadian bonds, yields might drop, which could result in lower borrowing costs and potentially lower mortgage rates. However, if tariffs cause a significant global economic downturn, this could reverse, pushing up rates.
4. Domestic Inflation
- Imported Goods Price Increase: U.S. tariffs could lead to higher prices on imports to Canada from the U.S. If Canadian consumers face rising prices, this could lead to domestic inflationary pressures. To combat inflation, the Bank of Canada might raise interest rates, which would lead to higher mortgage rates.
- Bank of Canada’s Response: If the inflationary impact is significant, the Bank of Canada might raise its benchmark interest rate to prevent the economy from overheating. Since mortgage rates are closely linked to the Bank of Canada’s policy, higher interest rates would likely result in higher mortgage rates.
5. Currency Fluctuations
- Canadian Dollar Volatility: A stronger U.S. dollar due to tariffs or trade tension could negatively affect the Canadian dollar. A weaker Canadian dollar can raise the cost of imports, driving inflation. To counteract inflation, the Bank of Canada may hike rates, thus increasing the cost of borrowing, including mortgage rates.
In summary, while the direct impact of Trump's tariffs on Canadian mortgage rates isn't guaranteed, a mix of economic slowdown, inflationary pressures, and shifts in global trade dynamics could lead to higher mortgage rates in Canada. The Bank of Canada’s policy response, influenced by these factors, would be the key driver in determining the rate environment for Canadian homeowners.
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