Factory, Wholesale Sales Fall in Canada as Trade War Toll Mounts Amid Tariff Squeeze
Canada’s trade-exposed backbone is buckling under the weight of U.S. tariffs, with fresh data revealing a fresh slump in factory and wholesale activity that economists warn could tip the economy into recession territory. As President Trump’s protectionist policies bite deeper into cross-border flows, manufacturers and distributors are slashing output and orders, amplifying fears of a prolonged slowdown just as households grapple with higher costs.
Statistics Canada reported on October 15 that manufacturing sales dropped 1% in August 2025, marking the sector’s fourth decline in five months and underscoring the mounting toll of the U.S.-Canada trade war. Wholesale trade receipts fared worse, tumbling 1.2%—a steeper hit than the 1.3% dip forecasted by economists in a Bloomberg survey. While not as severe as April’s brutal 2.8% factory plunge and 2.3% wholesale nosedive—the sharpest since late 2023—these figures highlight persistent weakness in tariff-vulnerable areas like autos, machinery, and motor vehicle parts.
The downturn traces directly to the escalation of U.S. tariffs reignited after President Trump’s January 2025 inauguration, slapping 25% duties on Canadian steel, aluminum, autos, and lumber—key exports accounting for nearly 75% of Canada’s shipments south of the border. Ontario and Quebec, epicenters of auto and metals production, bore the brunt: Factory sales in transportation equipment fell 2.1% in August, while petroleum and coal products—hit by refinery maintenance and softer global demand—plunged 10.9% earlier in the year. A brief summer rebound in June, with 0.3% manufacturing growth and 0.7% wholesale gains, offered false hope, but renewed tariff uncertainty has since eroded momentum.
Exacerbating the pain, Canada’s retaliatory tariffs—imposed in March on U.S. goods like yogurt, whiskey, and steel—were partially rolled back on September 1 under CUSMA exemptions for most exports, yet the damage lingers. New export orders to the U.S. cratered at rates unseen since the pandemic, per S&P Global’s PMI survey, with manufacturers scaling back purchases and drawing down inventories at the fastest clip in five years. Overall, factory output contracted for the fifth straight month in July, hitting a near five-year low amid foggy trade policies.
Economists are sounding alarms. “The tariff war is jeopardizing growth forecasts—recession risks are very much alive,” warned Avery Shenfeld, chief economist at CIBC, pointing to April’s data as a harbinger that August’s milder drop doesn’t erase. Bank of Canada Governor Tiff Macklem echoed this in an October 2 speech, noting how trade uncertainty has eroded business confidence and consumer spending, with high tariff-driven prices risking sticky inflation. A Canadian Federation of Independent Business survey of over 3,300 owners revealed 75% reporting heightened stress, 79% viewing unpredictable tariffs as a planning nightmare, and only 40% trusting government mitigation efforts.
Public backlash simmers online, with X users in manufacturing hubs venting over job cuts. One viral post from a Windsor autoworker read: “Tariffs killing my overtime—Trump’s ‘fair trade’ means layoffs for us Canadians. When does Ottawa fight back?” It racked up 4,200 likes, fueling threads on #TradeWarToll and calls for domestic diversification. Small business advocates like the CFIB push for tariff revenue rebates to affected firms, with 82% backing the idea to offset rising input costs.
For ordinary Canadians, the trade war’s toll cuts across fronts. Economically, it drags on GDP—exports to the U.S. fell 15.7% since March, ballooning a record trade deficit and shaving 0.5% off projected 2025 growth, per TD Economics. Households feel the pinch through pricier imports, with motor vehicle parts sales down 6.5% in April alone, hiking car repair bills amid stagnant wages. Lifestyle hits include delayed factory expansions in rust-belt towns like Oshawa, stalling community investments and youth job prospects. Politically, it ramps up pressure on the USMCA review next year, with Ottawa eyeing internal trade barriers—like high transport costs and productivity lags—to boost domestic sales as a buffer. Technologically, firms are pivoting to automation, but upfront costs amid the slump slow adoption in tariff-ravaged sectors.
Despite exemptions shielding most CUSMA goods, the uncertainty persists, with U.S. surtax remissions extended only to October 15. September GDP figures due this week may show a tentative summer rebound, but analysts like those at RBC caution that without tariff relief, Q4 could see sharper contractions.
Looking ahead, if trade talks stall into 2026, expect deeper cuts—potentially 2-3% quarterly drops in manufacturing—and calls for bolder Bank of Canada easing. Yet a USMCA thaw or targeted rebates could stabilize sales, averting recession and restoring some cross-border vitality. For now, Canada’s trade war scars serve as a stark reminder: In a tariff-tangled world, resilience demands swift adaptation.
By Sam Michael
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