Trade War via Tweet

Last night, Trump threatened to impose a 25% tariff on Canadian goods.

November 26, 2024

Read Time: 2 minutes

Last night, former U.S. President Donald Trump announced on Truth Social his intention to impose a 25% tariff on all goods imported from Canada and Mexico unless border issues are resolved.

If enacted, this policy could have significant ramifications for Canada's GDP, inflation rates, the value of the Canadian dollar, and, importantly, our multifamily real estate market.

Let's unpack the implications.

Recent Deals by Our Team

Here are a couple off-market wins we facilitated for our clients.

180 Vaughan Road, Toronto (22 units): Colliers discreetly sold this 22-unit building near Bathurst & St. Clair—mainly one-bedroom and bachelor units—for $5,700,000.

15 Forest Street, Parry Sound (25 units): We facilitated a joint venture for this 25-unit property, aligning a developer and an equity partner on both quantitative and qualitative goals.

Trade Wars via Tweet

First - here's what Trump posted on his official Truth Social account last night.

Initial Reaction: There's no way to sugar coat this. This would hit our Canadian economy - hard.

Trevor Trombe - professor of economics at the University of Calgary - estimates these tariffs will cause a decrease in Canada's real GDP by 2.6% annually, or roughly by $2,000/person - committing us to a recession in 2025.

Our Canadian dollar already took a hit, dropping 0.97% relative to the USD on the news.

Interest Rates & Inflation: As multifamily stakeholders - interest rates and GDP are important. Interest rates have an impact on cap rates and achievable leverage (and therefore leveraged returns), while GDP impacts how fast you can grow rents in your building.

The Bank of Canada (who determines the overnight interest rate) has two key mandates: economic prosperity and price stability (inflation control). In a down economy, the BoC can lower rates to stimulate commerce. They balance that with controlling inflation by raising interest rates.

For this reason, tariffs are a unique weapon. They'll hurt Canada's economy, but also cause inflation due to disrupted supply chains. This means Canada does not have a simple path to steep cuts without causing inflation.

Impact on Supply: There's precedent for Canada to enforce retaliatory tariffs on the US. With this in mind - construction costs would rise dramatically, constricting the development market even further. This - coming at a time when new development sales are already frozen (i.e. GTA new homes sales are currently a whopping 91% below the 10 year average). If you thought the housing crisis was bad now - just wait.

Path Forward: It's important to recognize Trump is the king of using threats to negotiate. Premiers like Doug Ford have already spoken out to mobilize the government to fix this boarder issue (not sure how we're in the same camp as Mexico, but that's neither here nor there). Meaning, these tariffs may not come to pass.

As it relates to our Ontario multifamily market - I'll leave you with some positivity:

Multifamily is an inflation hedge;

With uncertainty, there's a flight to quality (multifamily);

Subdued economy eventually = steep rate cuts; and,

Demand for housing will only going up.

But who knows - this may end up being a big nothingburger. I certainly hope so.

---