Will Trump’s Latest Tariff Threats Lead to Lower Mortgage Rates?

It should come as no surprise that Trump is now threatening a new wave of tariffs on Canada. I still scratch my head, wondering if Trump actually understands that tariffs are paid by the US importers of Canadian goods, therefore driving up prices for Americans. Particularly given the inflation problem, not just in the US, but around the world. 

While it’s the US importer flipping the bill, it drives up the prices of Canadian goods sold in the US, making them less price-competitive against non-tariffed alternatives. This reduces their demand, which has a negative impact on Canadian exports to the US. This is why tariffs can have such a deleterious impact on our economy.

A worsening economy would generally push the Bank of Canada to cut its rate. Does this mean that we can expect mortgage rates to drop? 

Let’s take a hard, no-nonsense look at how trade policy can impact the Canadian mortgage market. 

The New Tariff Threat: What’s on the Table and Why It Shakes the Economy

Trump is now threatening to implement a 50% tariff on a broad range of Canadian goods, scheduled to take effect on August 19. But this doesn’t mean it will become reality. So is this just another baseless Trump threat that he doesn’t plan to go through with? Or will it become reality? Sometimes, even a simple threat can be enough to move bond yields… the key influencer of fixed mortgage rates. 

When markets see a serious trade threat that could damage growth, investors often move into safer assets like government bonds.

When demand for Government of Canada bonds rises, yields fall. Think of it like a seesaw: bond prices up, yields down. And when those yields slip, downward pressure is placed on fixed rates. 

But here is the obvious follow-up: will these tariffs actually be implemented on August 19… or is this more tactical leverage? Fair question. Markets so far seem to be treating the threat with a healthy dose of skepticism. Why? Because trade threats are often used as negotiating pressure rather than as a final, fully enforced policy path. There is still room for back-channel talks, revisions, delays, narrower application, and legal pushback. In plain English: the threat is real, but the final outcome is uncertain. 

Yes, tariff threats can nudge bond yields lower. But the bond market seems to be less reactive to Trump’s rhetoric. Not to mention that the war in Iran seems to be what markets are most focused on.  

Overall, bond yields have been rising since late June, particularly due to increasing tensions in Iran. If they continue to rise, then fixed mortgage rates can be expected to follow suit. 

The Bank of Canada’s Dilemma: Growth Shock Versus Imported Inflation

Economists are currently locked in a fierce debate because tariffs create two opposing economic forces simultaneously. Let’s break them down:

• The Growth Shock (Downward Pressure on Rates): A severe trade dispute with our largest trading partner would undoubtedly weigh on Canadian GDP, weaken export demand, and stall business investment. BMO estimates the exposed trade is worth roughly 5% of Canadian goods exports and about 0.8% of GDP. TD Economics has projected that if these tariffs stick, they could shave roughly 0.3 to 0.6 percentage points off Canadian growth over the next year, likely closer to the lower end. If that drag becomes real rather than rhetorical, the Bank of Canada could be forced to pivot and cut the overnight rate to support domestic activity. That scenario would eventually drag variable mortgage pricing lower through prime rate changes.

• The Inflation Shock (Upward Pressure on Rates): Conversely, sweeping tariffs act like a massive tax on imported goods and cross-border supply chains. Higher costs can spill into consumer prices. If inflation spikes or proves sticky because of trade friction, the Bank of Canada might find its hands tied, keeping interest rates elevated or delaying any rate relief.

So what’s stopping the central bank from aggressively slashing rates in response to trade drama? In a word: inflation. The Bank of Canada cannot simply ignore price stability just because exporters are facing these additional challenges. If tariffs drive up imported consumer costs, the last thing policymakers want to do is stoke an inflationary fire by cutting rates.

That said, if August 19 comes and the tariffs are fully implemented… and if they remain in place long enough to weaken growth, confidence, hiring, and investment, then the conversation can quickly change. And that is exactly why some economists say the door to rate cuts is not wide open… but it is no longer locked.

Frequently Asked Questions

Do Trump’s tariff threats automatically lower Canadian mortgage rates?

No. While tariff threats can cause a temporary flight to safety in the bond market: which momentarily pushes 5-year Government of Canada bond yields down and results in minor fixed-rate adjustments: they also introduce inflationary risks. Because tariffs can raise import prices, the Bank of Canada must weigh weaker economic growth against sticky inflation, meaning rate drops are neither guaranteed nor uniform. In the current case, the U.S. announcement involves 50% tariffs on a broad set of Canadian goods scheduled for August 19, but markets still have to assess whether that deadline leads to real implementation or another round of political bargaining.

How do fixed mortgage rates respond to trade news compared to variable rates?

Fixed mortgage rates are priced off the 5-year Government of Canada bond yield, which reacts immediately to global economic sentiment and trade headlines. Variable rates, on the other hand, move in tandem with the Bank of Canada’s prime rate, which is governed by broader monetary policy decisions rather than day-to-day bond market fluctuations. BMO Economics currently expects the Bank of Canada to hold, but if tariff-related trade damage meaningfully weakens growth, that could reopen the door to rate cuts later on.

Should I change my mortgage strategy based on tariff headlines?

It is rarely wise to alter your core financial strategy based solely on volatile political headlines. Instead of trying to time short-term market dips caused by trade negotiations, focus on your personal financial timeline, risk tolerance, and long-term goals. Consulting with an experienced professional can help you evaluate current options without getting swept up in market noise.

Final Thoughts

If the August 19 tariff deadline passes without full implementation, or if the measures are watered down through exemptions, delays, or negotiations, the mortgage-rate impact may prove brief and limited… if anything at all. A headline can shock bond yields into moving in either direction, but it doesn’t automatically rewrite the entire rate outlook.

If the tariffs do stick, the market will start focusing less on the political theatre and more on the economic damage. That is where BMO’s view becomes important: the baseline may still be a hold, but deteriorating trade conditions could push the Bank of Canada back toward easing territory. Not guaranteed. Not immediate. But back on the table.

Any meaningful relief tied to prime rate will require clear, undeniable evidence that economic growth is slowing enough to tame inflation without requiring aggressive defensive measures from the BoC.

While bond yields would need to continue to rise before we can expect any notable rate changes, it’s always best to get a mortgage rate locked sooner rather than later. If you wait until the last minute, you could end up having to accept a higher rate than what you could expect today. There are still fixed mortgage rates as low as 3.84% (for an insured purchase).  But that promo could disappear at any time. The only way to guarantee yourself the lowest rate is to get a rate locked in quickly. We can always get your rate dropped for you should rates fall (and we hope they do). We can even move you to a different lender. Whatever we need to do to ensure we’re getting you the absolute lowest mortgage rate possible. 

If you have a purchase or mortgage renewal within the next 120 days, contact us today and we’ll let you know the lowest rates you’ll be eligible for.

As for what happens with rates moving forward? Time will tell and anything can happen.