The Twenty-Four
The Seven, September 4, 2026
Re-entering scenario land
By Mark Parsons 28 August 2026 7 min read
In this week’s The Seven…
- Choose your own adventure - Forecasting in a trade war
- Calm before the storm - Canada’s second quarter GDP
- Buying Canadian - When trade tensions flare up
- Next week - August jobs data and Bank of Canada rate decision
- Interesting Fact #1 - Tariffs and U.S. inflation
- Interesting Fact #2 - The world’s fastest-growing economy
- Chart of the Week - Evolution of U.S. tariffs by trading partner
“Wheat kings and pretty things, Let’s just see what tomorrow brings”
--“Wheat Kings,” The Tragically Hip
Those of my demographic vintage may remember the Choose Your Own Adventure books. If you turn left down the dark corridor, turn to page 42. If you inspect the glowing chest, turn to page 78.
But instead of fighting dragons, we’re trying to forecast what’s next in this “on-and-off” tariff saga. Depending on which page we land on, we could go down very different paths. For example:
- Scenario A (highly optimistic): A comprehensive trade deal, extinguishing old and new sectoral tariffs.
- Scenario B (our base case): The current slate of U.S. tariffs and proposed Canadian counter-tariffs remain in place.
- Scenario C (pessimistic): Tensions escalate further, pulling new product categories into the tariff crossfire.
Forecasting under these conditions requires a healthy dose of humility. For anyone looking at single-point projections, take them with an extra sprinkle of salt. The best advice is to look for signals in the daily noise, stay flexible and remain up to date.
That’s our game plan. On Monday (U.S. tariffs) and Wednesday (Canadian counter-tariffs), we examined what this means for Canada’s and Alberta’s economies.
The short version is that, if contained to the new tariffs, the macro impact is manageable, but this masks huge impacts for those businesses with products or inputs on the tariff list as I argue in a recent Globe and Mail article. A relatable example (because who doesn’t like honey?) is the Alberta honey producers who are now effectively shut out of the U.S. market as their product falls on the Section 338 list.
Here’s what else we’re following this week.
Canadian economy rebounds…but now faces a new test
The recession chatter got quieter this morning, as Canada just recorded a solid 3.3% annualized increase in real GDP in the second quarter. Moreover, Statistics Canada revised up Q1. It turns out Canada’s economy eked out modest growth in the opening quarter (+0.3% annualized) vs. prior readings of two straight quarterly declines that ushered in a national “is Canada in a recession” debate.
The details look good as well, with consumers, business investment and exports all contributing to the increase. Even better, economic growth is finally catching up to the population. With output per capita growing again, we’re almost back to the per capita peak of Q3 2022. With the solid Q2 in hand, we now expect the Canadian economy to grow by 1% this year, factoring in the slowdown from new U.S. tariffs now in effect.
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We don’t get a provincial breakdown, but a sharp 12.3% annualized gain in oil and gas extraction GDP in Q2 (following a 3.1% gain in Q1) bodes well for Alberta’s growth. It reinforces our view that Alberta’s economy will outperform the national average by a significant margin this year.
In this topsy-turvy environment, we’ll take the good news where we can get it. Still, there are a few cautionary notes:
- Expect growth to slow significantly in Q3 due to new trade headwinds as higher tariffs are now in effect, and the consumer runs out of steam amid higher energy costs. As an early indication, the advance GDP estimate for July was flat.
- Business investment did rebound last quarter, but there is still a long way to go. Real business investment (in non-residential structures, machinery and equipment) remains 3% below Q2 2023 levels and almost 14% below Q4 2014 levels. We have been beating this drum for a long time: more of Canada’s growth will need to come from the building of productive assets, and less from the consumer and housing. That’s the game plan in Canada, but we’ll need to see execution.
- An escalation in the trade war could derail growth.
Buying Canadian in a trade war
Canadians haven’t always agreed on how to respond to U.S. tariffs and threats, but knocking down internal trade barriers seems to have almost universal appeal. If you can’t sell to the U.S., let’s make it as easy as possible to sell to ourselves. In addition to the buy-local push, many Canadians are staycationing and cutting back on U.S. travel.
So how much progress has been made on knocking down interprovincial trade barriers? The big step was last fall with the signing of the Canadian Mutual Recognition Agreement on the Sale of Goods (CMRA) so that goods approved in one province can generally be sold nationwide. More recently, nine provinces and two territories agreed to allow direct-to-consumer alcohol sales.
The Canadian Federation of Independent Business (CFIB), typically critical of Canadian governments on internal trade, has bumped up its ratings. Yet it cautions: “high grades largely reflect commitments and policy intentions more than progress felt on the ground.”
There are still roadblocks. Excluded from the CMRA are services, labour, and items like food, alcohol, and plants. The agreement only covers the sale of a product, not its use (i.e., you may not be able to use it in a given province even if it can be sold). Trade friction remains in areas like food inspection, credential recognition, construction codes, and alcohol sales. This week the ministers responsible said they are working on many of these outstanding barriers.
Here’s a reality check: Canada-U.S. trade in goods far exceeds that between provinces. So yes, work on knocking down internal barriers, but also work to get a long-term and fair deal with the Americans.
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Interesting Fact #1: Tariffs and U.S. Inflation
Do tariffs add to inflation? Yes, by raising the cost of imported goods. But by how much, is an empirical question. In a recent study, economists at the Federal Reserve Bank of St. Louis found that tariffs accounted for “a large fraction” of the excess inflation in the U.S.—that is, inflation in excess of the 2% target. They found that tariffs were the dominant factor driving excess inflation up until February of this year, before other factors took on a larger weight. Still, as of June, tariffs were adding about 0.5 percentage points to inflation.
Why does this matter? Tariffs are making it harder for the U.S. to get back to target inflation and for the Federal Reserve to cut rates—something that President Trump wants.
Today in Jackson Hole, Fed Chair Kevin Warsh gave what was considered a ‘hawkish’ address as the ongoing battle against inflation continues, raising the odds of a September hike.
Interesting Fact #2: Guyana - The world’s fastest growing economy
In 2015, massive deepwater crude reserves were discovered off Guyana's coast in the Stabroek Block by ExxonMobil and its partners. Production launched from virtually zero in 2019 to over 600,000 barrels per day (bpd) in 2024, with plans to push production over 1 million bpd by 2027.
The result? Guyana, a South American country with a population of about 840,000, has recorded the fastest real per capita GDP growth in the world over the past decade.
Next Week: Canadian jobs report and Bank of Canada rate decision
The August labour force report comes out September 4. Canada has had a decent string of job gains, but we think that the current pace will be difficult to sustain—in no small part due to re-escalating trade tensions. We expect jobs to hold steady next month. A key point is that the job growth hurdle rate is lower now that the population isn’t growing—so we expect unemployment to hold even without much job creation.
In Alberta, we’re still waiting for higher oil prices and rig activity to show up in higher oil and gas employment. We see modest job growth resuming in August, and slightly lower unemployment.
The Bank of Canada makes its rate decision on September 2, and we expect them to remain on hold at 2.25%. The Bank of Canada is walking a tightrope—higher inflation from higher energy prices (and forthcoming counter-tariffs), but a highly uncertain growth outlook for Canada. The Q2 bounce-back won’t be enough to convince the Bank that growth is durably back in Canada, and they’ll want to see how the Iran war and U.S.-Canada trade dispute shakes out before making a move off the sidelines.
Chart of the Week: Evolution of U.S. tariffs by country
With new U.S. tariffs in place, Canada now faces a U.S. tariff rate closer to other trading partners as shown in our Chart of the Week.
Overall, U.S. tariff rates are now lower than in early 2025 following the introduction of “Liberation Day” tariffs.
The main reason is China. After the Trump administration levied U.S. tariffs exceeding 100% on Chinese imports, Beijing retaliated with strict export controls on essential rare earth minerals. Both nations lowered tariffs and eased mineral restrictions by mid-2025 to mitigate severe economic and supply chain shocks. The conflict stabilized further in early 2026 after the U.S. Supreme Court struck down broad emergency tariffs.
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Answer to the previous trivia question: The OECD country that has the highest percentage of youth “not in education, employment or training” (NEET) is Türkiye.
Today’s trivia question: What is the official language of Guyana?