Trade and tariffs
Get the latest analysis on the dynamic global trade landscape and how tariffs may impact the economy, markets, and industries.
Insights\ \ Transmission framework: How tariffs will flow through the US economy \ \ Economists are making a range of assumptions about how tariffs may work their way through the...\ \ \ \ 8 min read
Deep dive: How to monitor U.S. inflation in 2026
By Mike Reid, Carrie Freestone and Imri Haggin
Published February 3, 2026
As we approach the five-year mark of inflation running above the Federal Reserve’s 2% target, we remain concerned about the likelihood it remains stuck closer to 3% throughout 2026. The combination of a tight labor market, strong consumer spending, tariff pass through, and a lagged housing inflation measure is a recipe for sticky inflation.
Recent developments have suggested some moderation in the inflation profile—in particular—a slowdown in core services and motor vehicle prices. But we’re not convinced these deflationary trends will continue in the coming year. That said, monitoring inflation is particularly challenging right now. Data distortions and disruptions, uncertain tariff policies, and structural shifts related to demographics are adding crosscurrents in inflation’s path, and our ability to read it.
The 2025 US federal government shutdown disrupted data collection—with monthly data largely missing for October and collected over a condensed window in November. Ongoing distortions complicate high conviction interpretation of month-over-month inflation prints. Meanwhile, the Owners’ Equivalent of Rent (OER) component of the Consumer Price Index (CPI) continues to distort the picture, exerting outsized influence on the CPI basket, though its impact on the Fed’s preferred measure, core PCE, is more limited.
Click here for our full guide on how to monitor inflation data in the months ahead.
Trade Zone: Smashing down the trade barriers within
By John Stackhouse
Published January 30, 2026
Two of Canada’s top CEOs—Tracy Robinson of CN Rail and Max Koeune of McCain Foods—recently joined Sean Strickland of Canada’s Building Trades Unions for a discussion with the Business Council of Canada’s Goldy Hyder, on the big changes that Canada needs to make to infrastructure development, business regulation and immigration.
Robinson said we need to review our approach to labour negotiations to ensure the economy doesn’t get shut down as often as it does, especially in a world when other countries are happy to see that happen.
Strickland pushed for better labour force planning, to ensure we’re recruiting the right people and right numbers for the right needs in our economy. We’ve talked about that for years. It’s solvable.
Koeune called for immigration reforms that would give permanent residency applicants a clearer view of how long it will take, and where their application is at. He called the system a “black box,” which I’ve heard from plenty of other employers in recent months.
Davos ’26: Making sense of a new world order
By John Stackhouse
Published January 25, 2026
Last year, a day after his second inauguration, Donald Trump spoke by video to the Forum and promised a golden age for America. This time, he came in person to proclaim victory. With five cabinet secretaries and hundreds of American CEOs in tow, the President spent an extraordinary two days in the Swiss Alps projecting a 21st century version of American power.
This is no stay-at-home superpower. In Trump’s vision, the world will trade and prosper more than ever, on America’s terms. Close to three-quarters of global trade is still compliant with WTO rules. Inventory build-ups helped many companies escape the initial tariffs. A greater impact may come this year. But for the most part, “it’s still holding,” said Christine Lagarde, head of the European Central Bank, arguing the global economy is so intricate and intertwined even the U.S. cannot unravel it.
Trump’s more mercantile Pax America is not just economic. He came with an unsolicited bid for Greenland that was rejected by his closest NATO allies. He left with a Board of Peace, supported by an unlikely collection of 19 countries with a combined GDP of $5 trillion, roughly equal to Germany. Only four (Albania, Bulgaria, Hungary, Turkiye) are in NATO, and only four (Argentina, Indonesia, Saudi Arabia, Turkiye) are in the G20. Will Trump be able to expand America’s reach without stronger partners? Or is this the new geometry of power?
Earnings season offers U.S. equity investors a chance to refocus
By Lori Calvasina
Published January 16, 2026
There were four big takeaways for us in last week’s update from EPFR on U.S. equity funds flows. First, passive retail flows to U.S. equity funds have been solid in recent weeks, suggesting to us that retail investors have been helping to support the rally in U.S. equities to start the year.
Second, when we zoom out, we see that flows to U.S. equity funds as a whole have been choppy in recent weeks, though flows to global equity funds have been strong. We see the former as a headwind to U.S. equity market performance and the latter as a tailwind given the heavy market cap representation of the U.S. in global benchmarks.
Third, funds flows are showing a slight improvement for Western European equity funds, pointing to the possibility that some geographic rotation was occurring within the global equity community as 2025 wound down and 2026 began. We will be keeping a close eye on this data, along with investor conversations, to gauge whether a new “Sell America” trade may be returning to the equity market. This is an issue that we have seen as a key risk/headwind to monitor and one that could reasonably be viewed as having grown/strengthened in the aftermath of recent geopolitical and central bank developments (though RBC’s Rates Strategy team has argued that recent events related to the Fed can be viewed as actually having strengthened perceptions of Fed independence).
Fourth, at the sector level we note improving flows for Financials and Industrials, two of the cyclical workhorses of the U.S. equity market, along with continued strength in Energy and Materials/Commodities funds.
Overall, we think these trends in funds flow data highlight the complex dynamics underpinning U.S. equities today – renewed and growing optimism on the U.S. economy, but within the context of a global investor community that has become more open to geographically diversifying their equity exposure and has been presented with some new reasons to potentially do so as the new year has gotten underway.
Global economic outlook
By Lindsay Patrick, Vito Sperduto, Frances Donald & Mike Reid
Published December 16, 2025
Canada is technically avoiding recession this year, with improving data heading into 2026. The labor market shows extraordinarily low layoffs, though unemployment is rising due to weak hiring that disproportionately affects young people. Mortgage renewal pressures are easing, household balance sheets are strengthening, and business confidence is beginning to improve. While certain economy segments struggle and the country remains worse off than without trade tensions, the trade impact from U.S. tariffs has proven far less severe than widely anticipated.
The effects of tariffs remain concentrated in specific sectors and regions. Steel, aluminum, various auto sector segments, and softwood lumber continue facing substantial tariffs, while tariffs on canola and aquatic products add pressure. The 10% of trade affected by tariffs is predominantly located in southwestern Ontario, where unemployment ranges from 9 to 11%, contrasting sharply with areas maintaining very low unemployment rates. As 2026 approaches, this regional divide will likely intensify, creating significant challenges for policymakers.
Several risks warrant monitoring into 2026. In the U.S., the trade shock from tariffs is likely only beginning to materialize. A potential pullback in spending by the wealthiest 10% could impact the labor market and consumption patterns. The 2026 election cycle presents an underappreciated risk during a fragile economic transition. AI investment currently supports growth and creates jobs, though much of this value may prove transitory.
2026 Outlook: Macro, monetary policy & rates
By Jason Daw, Blake Gwinn & Simon Deeley
Published December 15, 2025
Treasury yields and curves are expected to remain range-bound throughout 2026, with temporary upward yield shocks possible from tariff-related developments. Potential stimulus measures ahead of the 2026 midterm elections, including possible tariff rebate discussions, could generate headlines around tariff revenues and their impact on supply-demand dynamics.
One of the bearish risks for rates centers on inflation expectations. Continued gradual pass-through of tariff costs, combined with easy fiscal policy and fading uncertainty around trade tensions, could collectively push inflation expectations upward in 2026. This represents the most significant downside risk to monitor.
Canada faces a fundamentally different growth landscape entering 2026 due to the transition to a new trade environment. Third-quarter GDP growth masked weakness in final domestic demand, while net trade benefited primarily from reduced imports.
CUSMA Deal and U.S. Rate Cut
By RBC Thought Leadership
Published December 11, 2025
The U.S. could carve out separate deals with Canada and Mexico. U.S. Trade Representative Jamieson Greer said Wednesday that the Trump administration is keeping all options on the table for the future of the Canada-U.S.-Mexico Agreement (CUSMA), which comes up for renewal in 2026. "Our economic relationship with Canada is very, very different than our economic relationship with Mexico," Greer said at an event in Washington. Meanwhile, Kirsten Hillman, Canada’s ambassador to the U.S., is stepping down as the country’s top diplomat in Washington in the New Year.
FOMC Decision: Fed ends 2025 with a cut but dissents reflect growing divide
By Mike Reid, Carrie Freestone & Imri Haggin
Published December 10, 2025
The Federal Reserve delivered a widely expected 25-basis point cut at its December meeting. The critical unknown is how tariff policies will shape the economy in 2026, with concerns shifting toward the inflation backdrop as the year approaches.
"There is no risk-free path for policy as we navigate this tension between our employment and inflation goals," Powell stated. "A reasonable-based case is the effects of tariffs on inflation will be relatively short lived, effectively a one-time shift in the price level."
The full extent of tariff impact on inflation has yet to be felt, and delayed government data releases continue to limit visibility into inflation's trajectory. PPI data has been delayed until January, further obscuring the tariff picture. Absent a notable acceleration in December inflation data, a window may remain open for one more rate cut early next year.
However, monetary policy will have limited impact on addressing tariff pressures in 2026. If tariff passthrough results in narrowed margins and consequent layoffs, monetary policy can do little to resolve a policy-induced price level shock. The risks are becoming increasingly asymmetric toward inflation, and as more FOMC voters dissent, an extended pause appears increasingly likely as the Fed's next decision.
Driving into the fog
By Blake Gwinn & Izaac Brook
Published December 8, 2025
2025 was largely a year of treading water amid stagflationary currents, and 2026 may prove more of the same. Expect sluggish hiring, slightly below-trend growth, and inflation stubbornly above target but lacking upward momentum.
Trade policy dominated 2025 but will take a backseat in 2026. The Liberation Day uncertainty spike served as an inflection point, though full tariff pass-through impacts remain outstanding. Growing comfort with the trade war should allow hiring demand and corporate activity to thaw. A court ruling on IEEPA could alter trade policy trajectory, and risks lean toward relaxation as the administration seeks to boost sentiment ahead of mid-term elections.
Beyond trade, a still-large deficit, robust tax refunds, and possible fiscal stimulus should limit demand deterioration. Fed rate cuts and neutral monetary policy should add marginal support. Replacement demand from elevated retirements and declines in foreign-born workers should maintain a soft floor under hiring.
Five themes for the US economy in 2026
By Frances Donald
Published December 3, 2025
Heading into 2026, we see a US economy that is increasingly on track for a stagflation lite scenario: GDP growth running below the typical 2% trend, while inflation remains uncomfortably high. The inflation story extends beyond tariffs – core services inflation runs hot at 3.5%, driven by housing and sticky wages, while tariff passthrough to consumer goods is expected to peak in Q2 2026.
The US consumer is becoming increasingly fragmented. The top 10% of households drive a near majority of consumer spending, benefiting from favorable tax policies and non-labor income sources like dividends and rent. Middle-income households face the greatest inflation pinch, while lower-income groups benefit from government transfers and cost-of-living adjustments.
The labor market has loosened but remains historically tight at 4.4% unemployment. Demand-side weakness concentrates in trade-reliant sectors, while supply constraints from immigration policy and record retirements remove nearly 3 million workers from the labor force since 2024, keeping unemployment capped around 4.5% for most of 2026.
Data center investment has driven recent growth but hasn't yet generated meaningful productivity gains. AI remains an infrastructure investment awaiting workforce skills development.
Finally, massive government deficit spending at 6% of GDP provides economic guardrails—limiting downside while constraining upside growth potential.
For a comprehensive analysis, read the full report here.
Five themes for the US economy in 2026
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Tariff talk from last week’s earnings calls
By Lori Calvasina
Published October 27, 2025
Overall, many of the companies that reported last week seemed to lean towards the idea that tariff impacts are stabilizing, while some continued to remind investors of the potential for future changes and continued to highlight the situation as dynamic.
Margin impacts were cited by some, but companies generally continued to highlight how they are managing through with discussions of their mitigation efforts.
Taking additional price increases was something we read about for several companies in different industries last week in the context of tariff discussions. We also took note of comments on the timing of tariff impacts, with one company noting they were halfway through the incremental tariff impacts on a year-over-year basis.
To access the full report, “The Pulse of the Market – Early Learnings from Earnings”, please contact your RBC representative.
U.S. and China develop “very successful framework”
By RBC Thought Leadership
Published October 27, 2025
U.S. – China developed a “very successful framework” during trade talks. While a deal wasn’t reached, both sides emerged from two days of “candid and in-depth discussions,” on everything from tariffs to rare earth metals, feeling confident with where things are headed.
The framework paves the way for a meeting in South Korea later this week between U.S. President Donald Trump and Chinese President Xi Jinping, the first face-to-face between the leaders of the world’s two biggest economies since Trump’s second term began.
Missing the AI boom
By Farhad Panahov
Published October 26, 2025
AI-related investments may have masked the impact of the U.S. trade war on global growth so far, the IMF notes in the latest World Economic Outlook.
Since the release of ChatGPT in late 2022, U.S. firms have quadrupled data-centre construction spending to nearly US $40 billion. There are now 5,000 data centres dotted across the U.S. Imports of data centre related equipment is up 50% over the same period. Taiwan accounted for half of the growth when it comes to U.S. imports of digital processing units.
Canada, as the chart below indicates, has remained on the sidelines of the AI boom despite a growing number of data centre applications. Demand for related equipment has shown only a small uptick in recent years. Click here to read more on RBC’s ‘The Trade Zone’.
Chart Type: Dual-line chart comparing indexed values over time Main Title: Canada lags behind the U.S. AI boom Subtitle and Measurement: This chart shows imports of data centre related equipment, specifically data processing units and parts, circuits and wires, and cooling equipment. All values are indexed with 2015 equals 100 as the baseline. Time Period: The chart spans from 2015 through 2025, with an asterisk noting that 2025 values are annualized based on year-to-date data. Data Series: Two countries are compared using distinct line colors. Canada is represented by a light blue line and the United States is represented by a dark navy blue line. Vertical Axis: The y-axis displays indexed values ranging from 75 to 225, marked in increments of 25. Horizontal Axis: The x-axis shows years from 2015 to 2025, marked annually. Detailed Data Trends: From 2015 to 2022, both countries followed remarkably similar trajectories. Starting at the baseline index value of approximately 100 in 2015, both the United States and Canada experienced modest, parallel growth punctuated by minor fluctuations. In 2016, both countries dipped slightly to around 95. They then gradually increased, reaching approximately 110 by 2018, experiencing a slight decline to about 105 in 2020, followed by growth to peaks of approximately 140 for the U.S. and 138 for Canada in 2022. A critical annotation appears on the chart between 2022 and 2023, marked with an arrow and the text "ChatGPT released." This notation highlights a pivotal moment that corresponds with a dramatic divergence in the two countries' import patterns. Following the ChatGPT release, the trajectories diverge sharply. The United States line initially dips to approximately 115 in 2023, then explodes upward in a steep ascent, reaching an indexed value of 202.6 in 2025—more than double the baseline and representing a 103% increase from 2015. This dramatic surge indicates massive acceleration in data centre equipment imports coinciding with the AI boom. In contrast, Canada's line shows far more modest growth. After a small dip to approximately 125 in 2023, Canada's line rises gradually to 144.4 by 2025—only a 44% increase from the 2015 baseline. While this represents growth, it is significantly more restrained compared to the U.S. surge. By 2025, a substantial gap of 58.2 index points separates the two countries, with the United States at 202.6 and Canada at 144.4. This gap vividly illustrates that Canada is not keeping pace with the United States in the infrastructure buildout supporting artificial intelligence development and deployment. Technical Notes: The subtitle references the HS codes (Harmonized System codes) used for the data: 8419, 8471, 8473, 8504, 8517, and 8542. The footnote indicates that 2025 represents annualized projections based on year-to-date import values. Data Source: Macrobond, fDi Intelligence, RBC Thought Leadership Key Insight: The chart demonstrates that while both countries showed similar import patterns for data centre equipment through 2022, the emergence of generative AI technology, marked by ChatGPT's release, catalyzed a dramatic surge in U.S. imports that has not been matched by Canada, suggesting a significant competitive gap in AI infrastructure investment between the two nations.
10% tariff on Canadian goods over ad
By RBC Thought Leadership
Published October 25, 2025
Donald Trump slapped an additional 10% tariff on Canadian goods over ad. The 60-second spot, sponsored by the Ontario government and featuring former U.S. President Ronald Reagan denouncing tariffs, had already prompted President Trump to call off all trade talks with Canada last week.
The Ontario government had said it would pull the spot, which aired during the World Series broadcast, on Monday. But Trump, who didn’t provide a date or what goods the increase would impact, demanded the hike on Saturday because the ad wasn’t removed immediately.
Softwood, Cabinets, and Beyond
By Claire Fan
Published October 14, 2025
Trade tensions between Canada and the U.S. continue to brew with new tariffs hitting key Canadian exports this month. U.S. duties on Canadian softwood lumber and kitchen cabinets kicked in on Oct. 14, and additional tariff threats loom over other critical exports, including pharmaceutical products and medium and heavy-duty trucks.
From our vantage point, these new tariffs are unlikely to significantly alter our baseline economic projections. The measures will raise the U.S. average effective tariff rate on Canadian imports by a modest 0.2%, nudging it closer to 6% from 5.5%. Yet the impact on specific industries – particularly forestry, logging, and wood manufacturing – will be far more pronounced.
What raises greater concern is the U.S.’s increasing use of Section 232 tariffs. These product-specific tariffs fall outside the exemptions provided by CUSMA. This effectively leaves more Canadian products and industries exposed to higher trade barriers.
Chart Type: Donut chart (ring chart) displaying proportional distribution Main Title: Most U.S. tariffs on Canada fall under Section 232 Subtitle: Share of average U.S. tariff rate on Canada by provisions Chart Description: This donut chart illustrates how U.S. tariff rates on Canadian imports are distributed across different trade provisions and sectors. The chart uses five distinct colored segments to represent different categories, arranged clockwise around a central white ring. Data Breakdown by Segment: 1. IEEPA (CUSMA exemptions apply) - Dark Blue Segment Position: Top right (approximately 12 o'clock to 5 o'clock) S
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