Quebec's economy is feeling the heat from renewed trade tensions with the United States. National Bank of Canada, one of the country's largest banks, warned Tuesday that new US tariff threats are adding downside risks to a provincial economy that has already slipped 0.5% since the start of 2025.
The warning comes as uncertainty around the United States-Mexico-Canada Agreement (USMCA) continues to weigh on business confidence. Senior economist Alexandra Ducharme said in a note that the latest tariff threats are widely seen as a negotiating tactic in talks over the trade pact, but the uncertainty itself is enough to change behavior.
What's behind the slowdown
Quebec's economy has been underperforming relative to the rest of Canada for some time. The 0.5% decline since January reflects a broader trend of sluggish growth, and the new tariff threats threaten to make that gap harder to close.
When companies face uncertainty about trade rules, they often delay hiring, investment, and large orders until they know what rules they'll be operating under. That hesitation can ripple through the economy, slowing everything from manufacturing to retail sales.
National Bank's analysis suggests that Quebec is particularly exposed because of its reliance on exports to the United States. The province's manufacturing sector, including aerospace, aluminum, and forestry products, is a key part of its economic base.
Broader context for Canadian investors
The tariff threats are part of a larger pattern of trade friction between the US and Canada. Other Canadian banks have also sounded alarms. BMO recently warned that a 50% US tariff threat could shave 0.5% off Canada's economy and complicate the Bank of Canada's rate decisions. RBC, meanwhile, noted that proposed 50% US tariffs would hit only a few Canadian manufacturing niches, but the broader uncertainty remains a concern.
For everyday investors, the key takeaway is that trade uncertainty can affect a wide range of assets. When businesses delay spending, it can slow corporate earnings growth, weigh on stock prices, and keep bond yields low as investors seek safety.
Canada's bond market is already signaling faster economic cooling than the US, as Canada's 2-year bond yields have been pointing to a sharper slowdown. That divergence matters for investors who hold Canadian bonds or stocks tied to domestic demand.
What it means for investors
For investors with exposure to Quebec-based companies or Canadian equities broadly, the National Bank warning is a reminder to watch trade headlines closely. The USMCA review is a recurring source of volatility, and any escalation in tariff rhetoric could hit sectors like manufacturing, transportation, and energy.
That said, the bank's analysis also suggests that the tariff threats may be more about negotiation than actual implementation. If a deal is reached, the uncertainty could lift quickly, potentially sparking a rebound in business investment and economic activity.
Investors should also keep an eye on the Bank of Canada. If trade uncertainty deepens and the economy slows further, the central bank may feel pressure to cut interest rates. That would be a different story from the US, where the Federal Reserve has been more cautious. The divergence in rate expectations is already visible in bond markets, and it could create opportunities for investors who position accordingly.
For now, the message from National Bank is clear: Quebec's economy is under pressure, and the path forward depends heavily on how trade talks unfold. Investors should stay informed but avoid making hasty moves based on headlines alone.
