Financial district Bay Street expected to begin in a weak manner
In the second quarter of 2025, a wave of U.S. tariffs sent ripples across global markets, causing concern over economic growth and raising the risk of a global recession.
ARC Resources Ltd. reported a net income of $396 million or $0.68 per share for the second quarter, bucking the trend of market volatility. However, the Canadian market ended weak on Thursday, with the S&P/TSX Composite Index closing at 27,259.78, down by 0.4%.
The announcement and implementation of new U.S. tariffs led to a sharp drop in the S&P 500 by 18.7% in early April, reflecting investor uncertainty. J.P. Morgan Global Research estimated the risk of a global recession in 2025 rising to 40%, up from 30% at the year’s start, attributing much of this to U.S. trade policy shifts and tariff uncertainties.
Effective U.S. tariff rates rose from 4% at the end of 2024 to roughly 15% by mid-2025, with potential to reach 30% if reciprocal tariffs are reinstated. This escalation reflects the Trump administration’s protectionist approach, including targeting foreign taxes such as VAT and digital services taxes, which could provoke retaliation.
The Canadian economy suffered significantly, contracting by an estimated 2.1% in the long run due to both U.S. tariffs and Canada’s retaliatory measures. This impact was the most severe among major U.S. trading partners. China’s economy shrank by about 0.2%, roughly half the contraction seen in the U.S., indicating moderate impact despite trade tensions. The EU showed a minor positive effect (+0.1% in long-run GDP), possibly due to trade diversification and less direct exposure, while the UK’s economy grew by 0.2%. However, escalating tariffs and uncertainties contributed to slower expected growth overall in the region.
The tariffs caused reallocation within the U.S. economy, with manufacturing output increasing overall, especially in nonadvanced durable goods, while advanced manufacturing declined. Other sectors like construction, agriculture, and mining contracted, highlighting uneven impacts across industries.
Although markets recovered by quarter end due to investor expectations that tariff threats might be softened ("TACO trade"), bond and currency markets remained cautious. Analysts expect that the delayed economic impact of tariffs will slow global growth into late 2025, with recovery more likely in 2026 if trade tensions ease. Investors are advised to focus on long-term views due to ongoing uncertainties.
In the midst of these developments, U.S. President Donald Trump confirmed higher U.S. tariffs, signing an executive order increasing tariffs on all Canadian goods not covered by the U.S.-Mexico-Canada trade agreement to 35% from 25%. U.S. President Trump also announced fresh tariffs on Canada and several other countries. Imports from countries with trade surpluses with the U.S. face duties of 15% or higher.
Asian stocks fell on Friday, and major markets in Europe are down sharply in negative territory. U.S. President Donald Trump asked 17 major global pharmaceutical companies to lower drug prices in the U.S., and West Texas Intermediate Crude oil futures are down 0.56%.
Despite these challenges, some companies are thriving. Enbridge, Inc. reaffirmed its distributable cash flow and adjusted EBITDA guidance for the full-year 2025. Magna International Inc. revised upward its full-year earnings outlook to $1.35 to $1.55 per share. TELUS Corp. announced a plunge in net income attributable to common shares for the second quarter.
A report on Canadian manufacturing activity is due from S&P Global at 9:30 AM ET. Silver futures are lower by 0.51%, and gold futures are down 0.06%. Chinese manufacturing activity returned to contractionary territory in July. Canadian and U.S. futures are lower at present.
In summary, U.S. tariffs in Q2 2025 contributed to heightened market volatility, increased global recession risk, significant negative impacts on Canada and China’s economies, mixed effects for Europe, and notable structural shifts in U.S. industry, all underlining the complex and far-reaching influence of escalating protectionism on global markets.
- The sharp rise in U.S. tariffs, leading to a global recession risk, has significant implications for various sectors, as demonstrated by the impact on the Canadian manufacturing industry, with an estimated contraction of 2.1% in the long run.
- In the realm of finance, the decision by some companies like Enbridge, Inc. and Magna International Inc. to revise their earnings outlooks, despite the ongoing tariff uncertainties, underscores the resilience of certain industries amidst global protectionist policies.
