Tariff Impact Being Felt in the Job Market, but Maybe Not for Long

Until now, the impact of the U.S. administration’s many tariff threats on the job market has been mostly conceptual. While there’s been a lot of discussion among governments, economists and consumers, no one was clear how or when the trade war might start affecting Canada’s economy. Following April’s Labour Force Survey published by Statistics Canada.

Last month, unemployment rose to 6.9 per cent, up from 6.7 per cent in March.¹ While the economy did add around 7,400 more jobs in April,² the manufacturing sector – the industry most impacted by tariffs so far – saw employment drop by 31,000 jobs.³ Wholesale and retail trade also experienced 27,000 job losses in April,⁴ potentially because of more negative consumer sentiment, explains Claire Fan, a senior economist at RBC Capital Markets. “We’re now starting to see the direct impact with pretty substantial losses in manufacturing,” says Fan, who published a note⁵ on the labour market in early May.

Fan points out that in November, after the Bank of Canada started cutting interest rates, businesses were ramping up hiring, with many optimistic about a post-inflation, lower-rate and higher-growth future. Those positive feelings have turned. “A lot of that has gone away,” she notes, adding that job openings more broadly began falling in January, as Canadians started worrying about the economy. “Businesses got caught in the current of a highly volatile environment, so they could do little in terms of planning and hiring decisions.”

Auto sector struggles

Not surprisingly, the automotive sector, which continues to face a 25 per cent tariff on finished autos and parts from Canada, excluding any U.S. content that’s compliant with Canada-United States-Mexico Agreement, was hit hard. In April, there were numerous reports of layoffs. While Statistics Canada doesn’t break down which subsectors within manufacturing were most impacted, it does point out that unemployment in the Windsor census metropolitan area, where automotive industries account for 43.1 per cent of manufacturing employment, reached 10.7 per cent, up 1.4 percent from March.⁶

There’s another reason why the unemployment rate rose in April: there aren’t enough jobs for new entrants into the labour market, says Fan, likely because companies are holding off on hiring. Since January, hiring demand has started to creep lower, according to RBC Economics research. While it’s still well above where it was in September 2024, when inflation-led economic fears were impacting business investment, the dip is another indication that trade may be weighing on the economy.

“Think about new graduates or people who, for whatever reason, weren’t working and now they’re looking for a job. They’ve entered into the labour market and they’re starting to look for employment, but the demand is simply not there because companies are not hiring,” says Fan.

Looking ahead

There is good news, though. Right now, the impact of trade is mostly confined to where you would think it would be – within manufacturing and the auto sector in particular. So far, it doesn’t seem to have affected too many other industries. In fact, finance, insurance and real estate, rental and leasing increased jobs by 24,000 in April, while 31,500 full-time jobs more broadly were added to the economy.⁷ “We’re not seeing job losses spread, and as a matter of fact, some of the services sectors are doing well,” notes Fan.

With U.S. President Donald Trump announcing a 90-day pause in America’s trade war with China, and appearing to soften his position on tariffs overall, it’s possible the impact on the economy may either be short-lived or at least not as bad as originally thought. “We’re comfortable now not calling a recession in Canada,” says Fan.

To see how the trade war may impact Canada from here, Fan is paying attention to the RBC Consumer Spending Tracker,⁸ which is updated every two weeks. While consumer spending declined in February and March, it was marginal, says Fan. If the tracker’s numbers drop faster and if hiring demand slows, then that would be an indication tariffs could be having a much bigger impact on the broader Canadian economy.

While Canada is still faced with 10 per cent tariffs on energy and 25 per cent tariffs on non-CUSMA goods that enter the U.S., this is one of the lowest overall tariff rates the U.S. has imposed on a country, notes Fan. It’s possible the worst may never come. “If the trade risk stays on a trend of de-escalation, then hopefully we will see fewer direct layoffs,” she says. “Once companies start getting a sense of normality and stability, they can plan ahead and that hiring demand could come back around again.”

Sources
^1. _{Statistics Canada, "Labour Statistics", April 2025}
^2. _{Statistics Canada, "Labour Force Survey, April 2025", May 2025}
^3. _{Statistics Canada, "Labour Force Survey, April 2025", May 2025}
^4. _{Statistics Canada, "Labour Force Survey, April 2025", May 2025}
^5. _{RBC Economics, "Tariffs hit manufacturing jobs in Canada in April", May 2025}
^6. _{Statistics Canada, "Labour Force Survey, April 2025", May 2025}
^7. _{Statistics Canada, "Labour force characteristics, monthly, seasonally adjusted and trend-cycle", May 2025}
^8. _{RBC Economics, "RBC Canadian cardholder spending continues to defy broader concerns", May 2025}