**
In a week marked by escalating trade tensions, U.S. President Donald Trump has issued severe warnings regarding tariffs on Canadian aircraft, while the Bank of Canada maintains its current interest rate. The situation is further complicated by rising crude oil exports and a new agreement aimed at enhancing South Korean automotive manufacturing in Canada. This evolving scenario is poised to impact both countries’ economic futures significantly.
Trump’s Tariff Threat on Canadian Aircraft
In a bold move, President Trump has announced plans to impose a staggering 50 per cent tariff on all aircraft produced in Canada until the Canadian government certifies Gulfstream jets manufactured in the U.S. This declaration, made via his Truth Social platform, includes a decertification of Bombardier Inc. and other Canadian aviation manufacturers’ products.
John Gradek, an aviation expert from McGill University, has dismissed Trump’s assertions as unfounded, stating that the Canadian aviation authority is merely reviewing Gulfstream’s modifications to its aircraft systems rather than decertifying them. He emphasised that the process is ongoing and not indicative of a failure on Canada’s part.
Furthermore, aviation data firm Cirium has cautioned that Trump’s tariff threats may disrupt operations for several U.S. airlines and aircraft operators, indicating the potential for widespread repercussions across the industry. Last week, Trump had also hinted at imposing 100 per cent tariffs on Canadian goods if a trade agreement with China materialised.
Bank of Canada Maintains Steady Interest Rate
The Bank of Canada has opted to keep its benchmark interest rate unchanged at 2.25 per cent, a decision that aligns with market expectations. Governor Tiff Macklem indicated that this rate remains suitable amid a climate of elevated uncertainty, which complicates predictions regarding future monetary policy adjustments.
Growth forecasts have been tempered, with the Bank’s latest Monetary Policy Report suggesting that trade uncertainties and a slow-growing population could hinder economic activity. This outlook is highly contingent upon U.S. trade policies, particularly in light of the impending review of the United States-Mexico-Canada Agreement (USMCA).
Simultaneously, the U.S. Federal Reserve decided against further interest rate cuts, marking a pause after three consecutive reductions. Fed Chair Jerome Powell noted that the central bank is well-positioned to make decisions on a case-by-case basis, adding to the uncertainty facing Canadian policymakers.
Canada Diversifies Oil Exports
Statistics Canada has reported a historic shift in Canada’s crude oil export dynamics, revealing that in November, a record 14.1 per cent of crude was shipped to countries beyond the United States. Notably, China accounted for 10 per cent of Canada’s oil exports during this period—a significant increase compared to an average of just 3 per cent for non-U.S. exports throughout 2023.
This diversification strategy reflects Canada’s commitment to reducing its reliance on the U.S. market, which has been a central tenet of its trade policy. Analysts view this development as a crucial step in strengthening Canada’s global positioning in the energy sector.
Strengthening Ties with South Korea
In a bid to bolster its automotive sector, Canada has signed a memorandum of understanding with South Korea to facilitate investment and manufacturing within the auto industry. Industry Minister Mélanie Joly and South Korean Trade Minister Kim Jung-kwan formalised this agreement during a recent visit to Ottawa.
This partnership aims to promote collaboration in the production of automobiles, electric vehicles, batteries, and hydrogen-powered vehicles, addressing the potential impacts of U.S. tariffs that have led to production cuts and job losses in Canada’s automotive sector. South Korea’s robust automotive industry, which produced 4.1 million vehicles in 2025, is poised to play a significant role in enhancing Canadian manufacturing capabilities.
Why it Matters
The current trade tensions and economic policies being implemented by both Canada and the U.S. could have far-reaching implications for North America’s economic landscape. Trump’s tariff threats not only jeopardise the relationship between the two countries but also threaten to disrupt industries reliant on cross-border trade. Meanwhile, Canada’s efforts to diversify its oil exports and strengthen automotive manufacturing partnerships demonstrate a proactive approach to navigating these challenges. As these developments unfold, they will be pivotal in shaping the future economic relationship between Canada and its largest trading partner.
