Trade Shock With The US Could Tilt the Bank of Canada More Dovish, BMO Says

06:53 AM EDT, 08/26/2026 (MT Newswires) -- Ottawa's latest countermeasures on US imports could deepen the economic drag from the renewed trade war and push the Bank of Canada slightly more dovish, according to BMO Capital Markets in a note on Tuesday. Overall, the trade shock is likely to bolster the case for a more dovish BoC stance, though BMO's Senior Economist Shelly Kaushik wrote in the note that she sees little reason to expect a move at next Wednesday's meeting. On Tuesday, Canada announced 15% to 50% tariffs on nearly C$28 billion of US imports, effective Sept. 8, targeting steel, aluminum and derivatives as well as consumer goods such as kitchenware and appliances. The Canadian government also unveiled C$7.5 billion in support, including business liquidity measures and expanded employment insurance for affected workers. BMO estimates current US tariffs could cut Canadian growth by about 0.5 percentage point over a year. Fiscal support should cushion some of the hit, but Canada's countertariffs could add 0.1 to 0.3 percentage point to inflation. "The silver lining is that the Canadian economy comes into this renewed trade war on decent footing, with growth and inflation behaving quite well," added Kaushik. However, near-term risks remain tilted toward further escalation, particularly after President Donald Trump threatened to raise auto tariffs to 50% at the start of the new year, said BMO.