By Michael O’Neill

The Loonie is staring into the abyss. Canada is not getting any relief from U.S. tariffs despite a recent meeting between Prime Minister Mark Carney and President Trump. In fact, things seem to have gotten worse. EDC’s Chief Economist Stuart Bergman warns that the Canadian economy will be in an official recession this year, with a mere 0.9% of economic growth in 2025. It is unlikely to get better soon due to the ongoing issue of low productivity from a lack of investment.

Running on Empty

U.S. Commerce Secretary Howard Lutnick declared it was “open season” on the Canadian automobile industry last week. He was blunt — “Car assembly is going to be in America, and there is nothing Canada can do about it.” He went on to say that the United States is determined to dominate the car-making industry and that final vehicle assembly would take place on U.S. soil.

Stellantis CEO Antonio Filosa took the message to heart. Yesterday, the Detroit-based executive trumpeted a plan to “Invest $13 Billion to Grow in the United States.” The press release included the news that “Belvidere, Illinois, plant to reopen for production of two new Jeep® vehicles.” Until yesterday, those Jeep vehicles were scheduled to be built in the Brampton Assembly Plant.

The writing was on the wall. The company lost about $3.7 billion in Canada in the first six months of 2025, partly due to tariffs.

How Much Wood Can Canada Chop?

It’s getting less and less every day as escalating tariffs curtail Canadian lumber exports to America. As of October 15, 2025, the total import tax levied by the U.S. on Canadian softwood lumber has reached 45% for most Canadian producers. Furthermore, the action extends beyond raw lumber, as value-added products like kitchen cabinets, vanities, and upholstered wooden furniture are now subject to separate tariffs starting at 25%, with plans to escalate those rates further in 2026.

B.C. Premier David Eby called the U.S. actions an “existential threat” to the forest industry. He demanded that Ottawa deploy the more than $1 billion that was committed to forestry with some urgency.

Steel Magnolias

Canada’s steel and aluminum producers were already suffering when Trump doubled tariffs on Canadian steel and aluminum to 50% on June 4. The levies don’t just hit raw metal; they touch everything from finished parts to semi-fabricated goods. The impact was immediate. Aluminum deliveries to the U.S. in August were down 51% from a year earlier (there are no steel numbers available).

Diplomatic Daisy

In the Canadian game of diplomatic daisy, instead of “she loves me, she loves me not,” it’s “tariffs on, more tariffs on.” Washington is piling on the import duties aimed at Canada even as supposedly “high-level talks” are ongoing. Canadians Dominic LeBlanc, Minister for Canada-U.S. Trade, Ambassador Kirsten Hillman, and Privy Council Clerk Michael Sabia are reportedly talking with America’s Lutnick and Trade Representative Jameson Greer in an attempt to get some tariff relief.

It’s an exercise in futility. Canada doesn’t have any clout compared to China. If Beijing played hardball with the U.S. administration and withheld export permits for rare earths, it would throw the global economy into turmoil.

The U.S. knows it, which is why U.S. Treasury Secretary Scott Bessent is proposing extending the current U.S./China tariff pause in return for Beijing easing up on restrictions to rare-earth exports.

Bank of Canada is Clipping the Loonie’s Wings

The Bank of Canada is poised to cut its benchmark rate twice more before year-end, which will take the overnight rate down to 2.0%. Last Friday’s stronger-than-expected employment report was likely an anomaly, as it is a volatile data series. In addition, Canada still lost 15,300 jobs between July and September.

The Loonie may also be feeling the effects of the 25% drop in West Texas Intermediate (WTI) oil prices since June. Canada’s largest crude export, Western Canadian Select (WCS), dropped 25% as well, and it is trading at about a $14.00-per-barrel discount to WTI. And the U.S. gets the advantage of the discounted crude.

Investors are not enamored with the near-term prospects for the Canadian economy, and that is reflected in the currency. USDCAD has chewed through multiple layers of resistance in the past two months, and it is trending higher. The last straw will be a weekly close above 1.4100, which would put 1.4280 in play and suggest a floor in the 1.3820 area.

The Loonie is not just staring at the abyss, its pricing it in.