Canada’s labour market is ‘static’ after a year of U.S. tariffs, population shift

OTTAWA — Thursday marks one year since U.S. President Donald Trump upended the global trading system with his “Liberation Day” duties — a major step in his wider tariff campaign that’s hammered critical sectors of Canada’s labour market.

With roughly a year of employment data now in hand showing the impact of Trump’s tariffs on Canadian jobs, economists say some of the early resilience to the trade disruption is giving way to a stalled labour market. A shrinking labour pool is also throttling job growth, experts warn.

And there are now risks that weakness could be spilling over from industries hard-hit by tariffs into services and sectors not directly exposed to the new trading order.

“The labour market over the past year has been pretty stable, and maybe even a better word for that is static,” said Brendon Bernard, senior economist at job search platform Indeed.

While the particular Liberation Day tariffs were recently ruled illegal by the U.S. Supreme Court, the impact started even earlier for Canada, with threats in February that materialized into sector-specific tariffs in March that are still in effect.

Statistics Canada’s latest labour force survey for February shows the winners of losers after a year of tariffs.

Manufacturing, a sector targeted directly by steep U.S. tariffs on steel, aluminum and autos, has shed 51,800 jobs over the previous 12 months, leading all industries for losses. The bulk of those lost jobs were in manufacturing-heavy Ontario.

Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, said he is worried the pain isn’t over for the automotive industry.

Work contracts in this sector are often set over six- or 12-month periods, he said. That could mean a further “recalibration” is coming for this part of the labour market as those contracts roll off the books.

Statistics Canada said in March that the industrial capacity utilization rate — how much Canadian industries are collectively producing compared with their potential — was 78.5 per cent in the fourth quarter of last year, down modestly from the previous quarter.

“If companies are not able to produce at these high levels, well, then they don’t need the workers to fulfill orders. So I just fear that the momentum and the weakness may continue,” DiCapua said.

Desjardins senior economist Kari Norman said the impact of tariffs has been steep on an individual and sectoral basis for many Canadian workers, but the hit to the national labour market has so far not been as bad as initially feared.

Norman said the outlook for manufacturing is highly dependent on the upcoming review of the Canada-U.S.-Mexico trade agreement later this year.

If Canada exits that review with a firm commitment and tariff levels similar to where they stand today, Norman said she thinks “we’ll continue to see manufacturing level off, rather than decline in terms of employment.”

StatCan’s labour force survey shows goods-producing sectors have collectively lost 34,200 positions year-over-year as of February, though services industries have more than offset those losses with a gain of 85,900 positions.

Canada’s health-care sector led those gains, adding 92,000 jobs over the past year. Norman said that makes sense as provinces continue to invest in health staffing to care for an aging population.

Strength in the services sector has been one reason Canada’s unemployment rate hasn’t deteriorated sharply over the past year.

But there were signs in February of cracks in that resilience: StatCan reported an 84,000-job loss in the month, led by a contraction in services.

When there’s prolonged weakness on one side of the labour market — say, because of a rapid tariff-driven drop-off in export demand — it can spread to the other side of the economy.

DiCapua gave the example of an auto parts worker in southwest Ontario losing a regular shift, and therefore not getting a Tim Hortons coffee on the way into work. After a while, Tim Hortons might decide it also doesn’t need as many staff to meet dwindling demand and could eventually pull back on advertising too, spurring knock-on effects through the economy.

DiCapua noted that provinces seeing the hardest hits from U.S. duties such as Ontario, Quebec, and British Columbia are also seeing less growth in services.

“I don’t want to draw too many conclusions on that other than to say that there could be just this general … weaker sentiment (around) U.S. tariffs and it could be affecting sectors that are maybe not directly affected,” he said.

Bernard said it’s “not surprising” that U.S. tariffs combined with a sharply slowing housing market are leading to spillover effects in Ontario’s labour market.

Some economists also view the steep job losses in February with a grain of salt.

While the monthly labour force survey is well-known among economists for its volatility, the less timely survey of employment, payrolls and hours — the SEPH — offers a different perspective of the jobs market.

Bernard said when the labour force survey was reporting a surge of job growth in the fourth quarter of last year, the SEPH was flat. That could suggest a more stable trend than the up-and-down monthly job headlines imply.

But whichever data source Canadians prefer to look at, Bernard said one thing is clear over the past year.

“Job growth by both metrics absolutely slowed down,” he said.

“The main driver of that, though, is what’s going on with population growth and demographics.”

StatCan reported in March that the Canadian population shrank in 2025, the first year on record with an outright decline.

With a growing number of baby boomers hitting retirement age and fewer young workers coming into replace them, Bernard noted that the size of the labour force will likely be flat or even decline in the coming months.

He said that means Canada needs to add fewer jobs to keep the unemployment rate steady. Monthly employment declines would also be more commonplace in the more volatile labour force survey, he argued.

“When the trend is flat … it’s going to be bouncing around that flat number,” Bernard said.

“Even absent the economy shifting, this is going to happen more.”

Desjardins’ outlook has the unemployment rate for 2026 holding around 6.7 per cent — right in line with February’s figures — before improving next year.

Norman said that status-quo forecast might come with a few pockets of job gains, with projected increases in government spending on defence and construction likely to spur hiring in those fields.

She also suggested that high levels of youth unemployment might come down in the summer jobs season as an energy price spike tied to the Iran war sends jet fuel and airfare costs soaring. That could push more Canadian families to vacation closer to home this year, she said.

“That should help support the tourism sector in Canada and those youth jobs that correspond to that,” she said.

This report by The Canadian Press was first published April 2, 2026.

Craig Lord, The Canadian Press