Economic turmoil in Canada narrowly evaded, yet persistent doubts linger
Quebec's manufacturing sector is grappling with significant challenges due to trade uncertainties and tariffs, particularly those imposed by the United States under former President Trump. The sector has experienced a job loss of 15,000 in the first six months of the year, with key industries like primary metals and chemicals bearing the brunt of the pressure.
The tariffs, especially on aluminum and steel, have increased production costs and disrupted exports, leading to a contraction in manufacturing output, paused growth projects, and slowed economic growth in the province. Alcoa Canada, a major aluminum producer in Quebec, halted all growth projects due to uncertainty created by Trump-era aluminum tariffs, delaying modernization investments essential for competitiveness.
These trade frictions contributed to a contraction of Quebec’s real GDP by 0.3% in April 2025, with the manufacturing slowdown a key driver of the province’s economic pullback. Without the drag from manufacturing, Quebec’s GDP would have shown modest growth, indicating the outsized impact of tariffs and trade tensions on this sector.
Under the USMCA, certain exemptions exist, but the imposition of steep tariffs (35% on non-compliant Canadian goods, 50% on steel, and 25% on aluminum imports) under Trump’s tariffs have largely overridden benefits of the agreement for Quebec’s export-driven manufacturing. Ongoing trade negotiations, with critical deadlines in August 2025, offer some hope of reduced uncertainties, but as of mid-2025, manufacturers remain cautious, delaying investments until clearer tariff resolutions emerge.
Véronique Proulx, the President and CEO of the Quebec Federation of Chambers of Commerce (FCCQ), stated that it's the economic uncertainty that's hurting businesses and regions the most. Businesses in Quebec are reducing production and letting go of workers, with some industries such as aluminum, copper, lumber, and the automotive sector being hit harder by tariffs. Investments in Quebec's manufacturing sector have decreased by $318 million compared to last year.
The construction sector in Quebec has also experienced a job loss of 25,000 in the first six months of the year. The Carney government must act on what it can control, such as local purchasing policies and restrictions on the number of temporary foreign workers, to mitigate the impact on businesses.
Despite not reaching a trade agreement before the August 1st deadline, Canada has a competitive advantage compared to other trading partners, even those that have signed an agreement. The negotiation of the renewal of the free trade agreement between the United States and Canada in 2026 is critical for the economy. The priority is to preserve free trade between the United States and Canada to limit the damage.
Canada is one of the least affected countries by President Trump's protectionist policies, with nearly 90% of Canadian exports being exempt from tariffs because they comply with the USMCA. However, taking into account the USMCA exemptions, Canada is the second country with the lowest tariff to the United States, after Mexico, with an average tariff of about 5%.
The primary sector in Quebec has experienced a job loss of 4,000 in the first six months of the year. The federal government must address the concerns of businesses that will be forced to reduce production due to the non-renewal of work permits, providing necessary support to help them navigate these challenging times.
In conclusion, Quebec's manufacturing sector faces substantial headwinds from the interaction of USMCA exemptions and unilateral U.S. tariffs: reduced sales, investment freezes, disrupted supply chains, and GDP contraction signal the significant negative impact of trade uncertainty on a province heavily dependent on tariff-sensitive manufacturing industries.
- The trade tensions between Canada and the United States, resulting from tariffs on aluminum and steel, have negatively impacted the political landscape of Quebec's manufacturing industry, causing an increase in production costs, disruptions in exports, and subsequent contraction in manufacturing output.
- The financial sector has also been affected, with businesses in Quebec reducing production, letting go of workers, and decreasing investments in the manufacturing sector by $318 million compared to the previous year.
- The ongoing negotiations in August 2025 offer some hope of reduced uncertainties, but manufacturers remain cautious and are delaying investments until clearer tariff resolutions emerge. This cautious business approach stems from the politics of trade and the impact of tariffs on the general-news landscape.
