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How Trump's Tariffs Could Impact Mortgage Rates in 2025

Political and economic forces threaten to forge an unexpected interest rate path in Canada.

Trump's aggressive trade stance is already impacting markets, businesses, and consumers in both Canada and the U.S. This level of trade disruption hasn't been seen in decades. How might it affect variable and fixed mortgage rate choices this year?

Mar 28, 2025

Posted Jan. 20, 2025 — Updated March 28, 2025

TABLE OF CONTENTS

A jackhammer to the economy — and mortgage rates?

U.S. President Donald Trump continues to impose tariffs on imported Canadian goods — with some paused until April 2.

As this trade war evolves, some experts peg a potential 2025 hit to the Canadian GDP (Gross Domestic Product) of 2.5%, unemployment nearing 8.0%, and a trade-knee-jerk inflation high of 7.2%. It's anybody's guess as to how this trade dispute will settle out.

So, you ask, how might mortgage rates be affected? That's a fair question, considering the Bank of Canada's interest-rate mandate is to keep inflation in check — and we've just endured 2 years of higher interest rates to tame 8.0% post-pandemic inflation.

Rising inflation from tariffs could complicate the Bank of Canada's interest rate decisions this year, as it also stares down a potential recession if widespread job losses and cooling consumer spending prevail.

Let's explore how trade disruption could impact fixed and variable mortgage rate decisions in 2025.

What are tariffs? And who pays them?

A tariff is a tax or duty imposed on imported (or exported) goods. It is designed to protect domestic industries, influence trade balances, or generate government revenue.

U.S. import tariffs imposed on Canadian goods are paid by the importing American company to the U.S. government (U.S. Customs and Border Protection), and the company typically passes on the higher cost to its domestic customers.

The same goes for Canadian tariffs imposed on U.S. imports — the Canadian 'importing' company pays those duties to the Canadian government (Canada Border Services Agency), which would likely raise consumer costs here.

Tariffs would bring a different kind of inflation.

There's more than one kind of inflation? More specifically, there are different mechanisms that can inflate inflation.

Demand-pull inflation is what we're used to, where prices rise from hotter demand while supply lacks and which the BoC fights to cool down with higher interest rates (as we saw with the post-pandemic boom).

However, higher prices passed onto consumers due to 'artificially' higher input costs for businesses (say, from broad tariffs) are seen as cost-push inflation.

Cost-push inflation from tariffs wouldn't necessarily invite the same central bank rate-hike solution as demand-pull inflation.

In fact, raising interest rates to combat flourishing cost-push inflation could cause deeper economic damage and risk stagflation — an entrenched state of high inflation coupled with a weak economy and high unemployment.

Keep in mind that Canada’s economy is still in recovery mode from recent higher interest rates — and current GDP projections lack the momentum to sustain very long against the percussive pounding of all-out tariffs.

"If 2025 turns into the year of tariffs, a variable rate is likely to go even lower than predicted. For those comfortable enough with this rate type, it could be the mortgage savings ace up the sleeve amid economic uncertainty."

– Dan Eisner, True North Founder and CEO

Variable mortgage rates — flexibility in uncertain 'tariff' times.

The variable advantage: Interest rates could go much lower.

The Bank of Canada may be "forced into additional interest rate easing to the tune of 50–75 basis points (bps) [equivalent to 0.50-0.75% in rate cuts]."

TD economics report delving into the ramifications of only a 10% U.S. tariff imposed on all Canadian goods, October 2024

Variable mortgage rates (and those for HELOCs) float and change along with the Bank of Canada's interest rate movements (which inform bank prime rates).

Just the threat of tariffs is enough to impact markets due to underlying nervousness about Canada's ability to grow its economy.

If the Bank of Canada needs to drill down its policy rate to prop up a tariff-weakened economy, variable rates could decrease further in 2025 than originally forecast.

For homeowners, the result could translate into significant savings from lower mortgage payments (or reduction in amortization for those with fixed-payment variable mortgages) — a potential silver lining for those comfortable banking on the 'risk for change' posed by a variable rate choice.

Would the BoC raise rates to combat higher 'tariff' inflation?

"We will need to carefully assess the downward pressure on inflation from the weakness of the economy, and weigh that against the upward pressure on inflation from higher input prices and supply chain disruptions.”

– Bank of Canada Governor Tiff Macklem, Jan. 29, 2025

As we mentioned, historically, central banks have been cautious about raising rates to address escalating cost-push inflation. Higher rates would increase consumer and borrower costs and deepen the economic trench.

The BoC's sole mandate is to keep inflation to a 2.0% target. But this cost-push inflation would be superimposed on an already weakened Canadian economy (ironically, a result of recent higher rates imposed to tame inflation that went as high as 8.3% in June 2022). The central bank would likely shift its focus from fighting inflation to supporting the economy.

However, inflationary pressures and trade volatility on both sides of the border may still limit the BoC's ability to cut rates as quickly as the economy requires.

If demand tanks due to job losses, wouldn't that lower inflation?

Lowered demand due to job losses or household financial uncertainty could absolutely place downward pressure on consumer prices. Fewer people buying means businesses are pressured to keep prices lower to remain competitive.

Would it be enough to combat higher prices passed on to consumers due to higher tariffs? That's where the push-pull of inflationary forces start to complicate the economics — companies are caught in the middle, needing to compensate for higher input costs from trade taxes while keeping prices low enough to spur customer purchases.

Weak consumer demand may not be enough to mitigate higher 'tarifflation.' Especially if tariffs on energy remain in place; the U.S. imports Canadian crude for almost 60% of its needs, with some re-crossing the border back into Central Canada, which is certain to impact prices across the board.

In response to tariffs, would interest rate cuts happen sooner, or later?

Trump's trade bluster has already influenced BoC policy rate decisions, resulting in 1.0% in rate cuts since December 2024.

Now with a full trade war in effect, the odds have flipped to seeing more continued cuts in the first half of 2025 (vs. a rate pause) as worries also flip from inflation's advance to an oncoming recession thanks to Trump's repeat Oval Office turn.

Depending on how Canadian businesses weather the trade impact, the cuts could speed up — with talk of a BoC inter-meeting cut possible (a policy rate decision handed down between set dates) to get ahead of a substantial downturn.

Would the BoC care about early demand-pull inflation?

Certainly, it cares, and has already indicated (with its outside voice) that it won't lose sight of its role in fighting inflation.

Demand-pull inflation in the short term could force the BoC to pause its policy rate in early 2025.

And there are plenty of other inflationary pressures going around that will complicate the BoC's decisions in the next few months, like a lowering Canadian dollar and a wide rate divergence with the U.S. Fed.

Further rate hikes, though, are (hopefully) unlikely for the next while, with Canada’s economy still reeling from the last rate-hike go-round and now dealing with the trade-war hit.

How did the BoC handle rates the last time Trump introduced tariffs?

During his first presidency, in 2018, Trump imposed hefty 25% and 10% tariffs on Canadian and Mexican steel and aluminum. He eventually lifted them in 2019 after retaliatory action and a renegotiated trade agreement between Canada, U.S., and Mexico (CUSMA) — calling it the BEST EVER trade agreement.

Those tariffs led to sector job losses, and the knock-on effects raised some prices. But overall, they didn't jackhammer Canada's economy (past presidents have also enacted targeted tariffs, like on Canadian lumber).

However, inflation did rise into the 3.0% range in 2018, largely spurred by a healthier economy.

The Bank of Canada gradually increased its policy rate with three hikes that year, going from 1.00% to 1.75%, to bring inflation back in line. (Canadian interest rates didn't change in 2019.)

Fixed mortgage rates — stability amid trade and economic shifts.

Unlike variable rates, fixed mortgage rates are influenced by the bond market and set according to bond yields, which respond to market factors and fluctuations. This rate type doesn't follow interest rate changes but instead anticipates where they're going.

Fixed mortgage rates are the favourite choice of risk-averse homeowners, and many may stick with a fixed rate during economic volatility despite any potential savings from variable rates.

With full tariffs, the 5-year fixed rate could drop more if interest rates go lower.

Currently, the 5-year fixed rate market has about one more prime rate cut priced in.

But now that tariffs are a reality, investors could seek safer assets, increasing demand for Canadian government bonds, which typically drives bond prices up and yields down. Yields on a steady downward trend can be an indication that the economy is in trouble, predicating lowering prime rates.

If the BoC is going to reduce prime rates further, fixed rates will head down ahead of those cuts — though probably in typical roller-coaster fashion. Bond yields react to everything (economically) under the sun, every day, which can (eventually) push fixed mortgage rates up or down in a range.

No matter the decline, at some point, fixed rates will stay put as prime rates (aka variable mortgage rates) make their way down.

A fixed rate is still (usually) higher than a variable rate.

5-year fixed rates are usually higher than 5-year variable rates (including lender discount off prime) by a spread of about 0.25% to 1.0%. Variable rates are typically lower than fixed rates because of the increased risk of change.

This natural rate relationship flipped during the post-pandemic Bank of Canada's 'extremely fast' rate-hike cycle.

As interest rates return to earth, these rate types will assume their historical spread relationship.

Keep in mind that typical lender 'discounts off prime' offered on variable rates may shrink during times of significant financial stress but are still likely to deliver mortgage savings over a fixed rate.

How would fixed rates behave with tariff on, tariff off?

Much more so than the variable rate (prime rate decisions are set for only eight times a year), the 5-year fixed rate would register ongoing volatility, especially if there are 'negotiations' in tariffs along the way.

Market uncertainty could push bond yields around, and mortgage lenders would raise and lower fixed rates accordingly to keep their mortgage costs in line.

Wouldn't bond yields increase in response to tariff-induced inflation?

Yes, bond yields might temporarily increase in response to tariff-related inflation, but because this cost-push cause of the inflation affects the economy differently than a demand-pull cause, the anticipation of lowering interest rates — as tariffs weaken the economy — would eventually reign to lower bond yields as investors turn to safer government bonds during a weaker economic print.

Could higher inflation in early 2025 raise Canadian fixed rates?

Yes. As tariffs hammer trade relationships and logistics (supply chains), inflation could worry the markets and send 5-year Canadian bond yields higher.

So then, 5-year fixed rates might rise by about 0.15% (or more) higher if inflation worries pull ahead of economic ones for a time. Keep an eye on upcoming economic readings to see how bond yields react.

However, with trade turmoil the new state of being, over time, fixed rates have more potential to decrease rather than increase.

Trump's Tariff Threats – The Latest News

Imposed on March 4:

  • 25% tariffs on most imported Canadian goods
  • 10% tariffs on Canadian energy (oil, electricity and natural gas)
  • 25% tariffs on Mexican imports; China tariffs double to 20% from 10%


On March 6, Trump paused some tariffs until April 2

  • Trump first delayed auto tariffs for a month
  • Then, he removed 25% tariffs from CUSMA-compliant goods (for Canada and Mexico; energy products remain tariffed), which requires all components to originate from within the three countries involved, as well as certain labour and environmental standards
  • That leaves roughly 62% of Canadian imports still subject to the tariffs (and half of goods coming from Mexico, including avocados)

On March 12:

  • Trump imposed 25% steel and aluminum tariffs (reduced from 50% after Premier Ford removed 25% electricity tariffs)
Coming on April 2
  • 25% Canadian auto sector tariffs (not including Canadian-made vehicles with 50% or more American parts)
  • Reciprocal tariffs on all U.S. trading partners (Canadian GST is included in that directive)

Canada retaliated with $60B in tariffs on U.S. imports and is delaying until April 2 another $95B of imported U.S. goods. See the list of U.S. goods targeted here.


Some good news? Canadian inter-provincial trade restrictions are already starting to fall away, a positive development for our economy.

Dates for tariffs are subject to frequent changes. In the meantime, the U.S. trade dispute isn't going away (they want Canadian water, among other things) and will continue to evolve. Stay tuned.

Elbows up!

“Canada is being needlessly and unfairly targeted by these tariffs – and the U.S.’s decision leaves us with no choice but to respond to protect Canadian interests, workers and businesses."

– Finance Minister Dominic LeBlanc, Buckley, CTV News, Mar. 7, 2025

Team Trump is playing full contact trade aggression, and Canada has gone in elbow's up with its own tariffs on imported U.S. goods to even out the game.

So far, $60B worth of U.S. products have been impacted, with another $95M coming on April 2 — the date when U.S. President Trump has said he will 'unpause' 25% tariffs on Canadian imports not covered under the current CUSMA agreement.

Canadian provinces are also responding with their own directives, cancelling orders for U.S. services and goods (such as alcohol), encouraging buy local movements, and actively seeking new trade partners.

Tit-for-tat? Tariff-for-tariff?

"Just as Trump "intends to fill America’s coffers with tariff revenues," Canada "can do the same," suggesting that Canada could re-distribute the revenue generated by counter-tariffs to workers hard hit by a tariff war."

– Chrystia Freeland paraphrased in Toronto Star article, MacCharles, Jan. 17. 2025

Foreign Affairs Minister Joly recently suggested that job losses from Trump's threatened tariffs would first occur to "the sectors most vulnerable to tariffs include manufacturing, mining, the energy sector, agriculture and forestry," and have knock-on effects "on other sectors, like retail, education, and health care."

Canada's trade retaliation is fully underway — as Trump continues his aggressive trade stance.

Canada's businesses and industries are already experiencing the shock of Trump's trade war, with rising input costs and supply chain havoc.

Signs of an immediately deteriorating economy could start registering soon in higher unemployment, weaker GDP numbers, reduced consumer spending, and increasing inflation.

The U.S. is also facing economic turmoil — as the stock market and Trump's poll numbers plunge — and could result in job losses and higher inflation, which happened the last time Trump imposed only targeted tariffs in 2019.

On a positive note: A recent KPMG survey suggests that 67% of Canadian businesses have readied to weather a trade war that lasts more than a year.

Regardless of the turmoil Canada has been forced into, count on our people and companies to stand up and help contribute to building economic resilience.

Would revenue from tariff retaliation be enough to cushion the tariff-induced inflation and job loss blow?

  • Even with the additional revenue, Canadian consumers could face higher costs, eroding disposable income and dampening economic growth.
  • Tariff revenues are unlikely to fully neutralize the inflationary pressures because they do not directly reduce consumer prices.
  • While tariff revenue can be redirected to support workers or industries through targeted programs, historically, it has generally been insufficient to fully compensate for widespread job losses or economic disruption.

The federal government is talking 'tariff relief' — but could that worsen the economics?

Government tariff relief would likely also not be able to fully compensate for business or individual financial losses due to tariff trade disruption, though it may help in the short term.

However, the government borrowing necessary for such relief may eventually result in increased taxes and higher interest rates — as government spending can often come at an economic cost that's paid later.

Is there any silver lining to this trade dispute started by the U.S.? Of course there is.

It's obvious that major adjustments will need to be made, both in the short and long term.

Federal and provincial efforts to reduce regulatory barriers — such as interprovincial trade restrictions, homebuilding regulations, pipeline obstacles, and manufacturing constraints — could help improve local and international supply chains and economic resilience.

Streamlining these processes may also support Canada's ability to diversify global trade partnerships and mitigate economic disruptions.

Initiatives to 'Buy Canadian' to support local businesses are already underway, as many realize just how many daily purchases they make of 'American goods.'

“We don’t need 14 different economies, we need one.”

– Jeannine Ritchot, Assistant Deputy Minister of Internal Trade, quoting newly sworn-in Prime Minister Mark Carney in relation to ongoing efforts to eliminate inter-provincial trade barriers

Reducing Canadian inter-provincial trade barriers would help buffer the impact

Healthy trade relationships begin at home. And on March 6, an unprecented agreement between Ottawa and most provinces is the first start to shore up our Canadian family.

Inter-provincial taps were finally opened, removing the barriers to selling alcohol across the country (P.E.I, and Newfoundland and Labrador have opted out, so far).

Will more inter-provincial industry barriers fall?

Before the 2025 U.S. tariff tiff, substantial inter-provincial trade restrictions and carve-outs were in place, designed to protect local businesses. Altogether, it was the equivalent of about 21% tariffs, despite a 2017 Canada Free Trade Agreement formed to iron out some of the obstacles.

Several experts have mentioned that reducing trade barriers within Canada might provide an economic boost when we need it most. According to Internal Trade Minister Anand, it could "lower prices by up to 15%, boost productivity by up to 7% and add up to $200B to the domestic economy." (CBC News, Feb. 5, 2025).

More free-flowing internal trade could also ease international partners' access to Canadian goods.

"As Trump doubles down on his “America First” rhetoric, he is, at best, ignoring the most crucial fact about the American economy: It runs on trade, [which] is Americans buying imported goods and American companies exporting to the rest of the world."

Tariffs Won't Make America Great Again, Fortune, Hochberg, Mar. 17, 2025

The Smoot-Hawley Tariff Act of 1930: A great depression that seemed to end the trade tariff argument. Until now?

"...when US Republicans passed the calamitous 1930s Smoot-Hawley tariffs, Canada was the first to hit back, doing so before the US had even finished legislating."

BBC News, Feb. 6, 2025

Until now, everyone thought the world trade community had learned its lesson from the 1930 World Trade War, which the U.S. Tariff Act started. The resulting (legendary) negative economic repercussions reverberated for decades.

Named after its sponsors, Senator Reed Smoot of Utah and Representative Willis C. Hawley of Oregon, this Act intended to shield American farmers and manufacturers from foreign competition by significantly raising tariffs on a wide array of imported goods.

U.S. President Edgar Hoover signed it into law in 1930 despite warnings from economists and business leaders about its potential adverse effects.

  • The Act raised tariffs on over 20,000 imported goods to historically high levels, with some duties exceeding 50% (like on Canadian wheat and dairy)
  • Several countries, including Canada, responded with their own tariffs on U.S. goods, reducing international trade
  • The global tariff war worsened the global economic downturn by disrupting trade flows and exacerbating conditions that led to the Great Depression, a severe economic crisis of the 1930s

1930 was a long time ago. The global trade economy is far larger and more interconnected today.

It seems hard to believe that a nation as powerful as the U.S. would entertain these types of trade restrictions (Canada is not the only country being targeted), risking a global trade war, or at the very least, one with a friendly, neighbouring country, at the expense of economic growth and prosperity.

So, we take a measured (mortgage) outlook and wait to see if the bluster becomes a blatant reality. And then how hard that reality could hit.

Did the 1930 trade war increase inflation or decrease it?

Prices fell sharply both in Canada and the U.S., leading to severe deflation rather than sustained inflation:

  • The U.S. price level dropped by roughly 25% from 1929 to 1933
  • In Canada, the CPI fell by about 24% overall from 1930 to 1933

"Tariffs will only raise prices and increase the economic pain being felt by everyday Americans across the country."

– U.S. Chamber of Commerce, as quoted in National Post, Thomson and Nardi, Mar. 4, 2025

Mortgage Rates in 2025 — no tariffs, with tariffs, or somewhere in between.

For those of you who regularly tap into our 2025 Mortgage Rate Forecast blog — which features insights from True North CEO Dan Eisner and continually updated economic factors and numbers — follow along as we outline the political maneuverings and try to predict the (mortgage) rate road ahead.

If tariffs come on full board — How long they stay could completely change the economic outlook for 2025 and beyond, and lower interest rates are likely to soon follow.

If tariffs land somewhere in between — Not all goods, not all 25% tariffs? Then, it's back to one month's economic readings at a time to assess the impact and where the Bank of Canada would take its policy rate from there (with an economy that's still recovering from higher interest rates).

In this case, the Bank of Canada's interest rate decisions would become more complicated as it seeks to tamp down inflation while encouraging healthy consumer demand.

True North has been jackhammering mortgage rates for over 18 years.

We're Canadian through and through (you can tell by our name), including our in-house lender, THINK Financial. We exist to help you save on mortgage rates. And for you to have a better option than just caving to your big bank.

Tariffs or no tariffs, wherever the economy takes us, our highly trained, salaried (non-commissioned) brokers are well-positioned to offer discounted rates, exceptional free service, fewer fees, and less costly penalties.

You can count on a simple process and unbiased advice to outline clearer choices.

During this time of uncertainty, we're here to help answer all your questions — and help you continue along your (mortgage) way.

Give us a shout, anywhere you are in Canada. Our fast, simple, free service is available online, by phone or email, or at a store near you.

Tariff-ically great rates and advice (too soon?)