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TARIFF-INDUCED BANKRUPTCY: WHAT CANADIANS NEED TO UNDERSTAND

tariff

Tariff Introduction

As a licensed insolvency trustee serving the Greater Toronto Area, I’ve seen firsthand how unexpected financial pressures can push individuals and businesses to the brink. One growing concern for Canadians is the impact of United States tariffs on our economy, businesses, and finances.

In this Brandon’s Blog, I explore how the claims surrounding the United States Trump administration’s tariff program will impact household and business finances, debunking myths and clarifying truths about tariff collection and increases in consumer prices.

Definition and Purpose of Tariffs

Tariffs are essentially taxes or duties imposed by one country on goods and services imported from another country. When the United States places them on Canadian lumber, for example, American companies buying that lumber must pay the additional tax, making Canadian wood more expensive in the United States market.

Governments, including the Government of Canada, implement them for several key reasons:

Protection for Domestic Industries: Making foreign products more expensive gives local manufacturers a price advantage. The United States may place them on Canadian steel to help American steel producers compete more effectively against their Canadian counterparts.

Revenue Generation: Historically, before income taxes became common, tariffs were a major source of government income. Even today, they continue to generate billions in revenue for governments worldwide.

Political Leverage: Countries often use them(and counter – tariffs) as bargaining chips in larger trade negotiations or to apply pressure during international disputes. Merely the threat can push trading partners to change their policies on other issues.

Trade Deficit Reduction: Some governments believe that placing them on imported goods will reduce the number of foreign products entering their country, potentially reducing their trade deficit.

For Canadian businesses, understanding tariffs isn’t just about economics textbooks—it’s about survival. When a 10% or 25% rate applies to your domestic products entering the United States market, your competitive position changes overnight. Your American customers face an immediate price increase, even though your actual costs haven’t changed.

What makes them particularly challenging for business planning is their unpredictability. They can be announced with little warning, implemented quickly, and changed or removed just as suddenly, depending on political winds. This uncertainty makes long-term business planning extremely difficult for Canadian companies that rely on cross-border trade.

As we’ve seen in recent years, tariffs rarely exist in isolation. When the United States imposes them on Canadian goods, Canada typically responds with retaliation against United States products. This back-and-forth creates a “tariff war” where both sides face economic consequences—and businesses and consumers on both sides of the border end up paying the price.tariff

Historical Background of Canada-United States Tariffs

Their use in Canada-United States trade relations isn’t a new phenomenon—it’s part of a long history that has shaped our economic relationship for generations.

In the early days after Confederation, Canada used high tariffs as part of the National Policy to protect our emerging industries from American competition. This helped build Canadian manufacturing but also increased costs for consumers.

The modern era of Canada-United States trade began with the Auto Pact in 1965, which eliminated tariffs on vehicles and parts between our countries. This agreement showed how both nations could benefit from their reduction and set the stage for bigger changes.

The real breakthrough came in 1989 with the Canada-United States Free Trade Agreement, followed by NAFTA in 1994, which included Mexico. These historic agreements removed most tariffs between our countries, leading to a dramatic increase in cross-border trade. Many Canadian businesses built their entire business models around relatively free access to the US market.

For nearly 25 years, Canadian companies operated with relative certainty about cross-border trade rules. This stability allowed businesses to:

  • Make long-term investments in export capacity
  • Build integrated supply chains across the border
  • Develop specialized domestic products for the United States market
  • Create jobs dependent on United States-bound exports

This relatively tariff-free environment began to change in 2018 when the United States imposed new tariffs on Canadian steel (25%) and aluminum (10%), citing “national security concerns.” These tariffs came as a shock to many Canadian businesses that had never imagined such barriers returning to our trade relationship.

Canada responded with retaliatory tariffs on American products ranging from steel to maple syrup to playing cards—specifically targeting products from politically important US states. This tit-for-tat approach marked the beginning of a new, more uncertain era in Canada-United States trade.

Though NAFTA was eventually replaced by the Canada- United States- Mexico Agreement (CUSMA or USMCA) in 2020, the threat of sudden tariff changes continues to hang over Canadian businesses. The steel and aluminum tariffs were eventually lifted, but they demonstrated how quickly the cross-border business environment could change.

This historical context helps explain why today’s tariff threats create such significant financial stress for Canadian businesses. After decades of building business models around tariff-free trade, many companies lack the financial reserves or flexibility to quickly adapt to new trade barriers.

For businesses already operating on thin margins, these sudden shifts in trade policy can be the final push toward insolvency – turning profitable operations into financial crises virtually overnight.

Why Should Canadians Care About Tariffs?

As more fully described above, tariffs are taxes placed on imported goods. When the United States adds tariffs to Canadian products crossing the border, those products become more expensive for American buyers. This means Americans may buy fewer Canadian goods, hurting our businesses that rely on United States sales.

At the same time, when Canada places retaliatory tariffs on United States goods coming into our country, those products become more expensive for Canadian consumers and businesses. Either way, tariffs lead to higher prices and financial strain for many Canadians.tariff

Tariffs and Economic Impact

When tariffs enter the picture, they create ripple effects that extend far beyond the specific products being taxed. For Canadian businesses and consumers, these economic impacts can be wide-ranging and sometimes surprising in how they affect our financial well-being.

Impact on Global Trade

Tariffs fundamentally change the flow of goods across borders. When the United States imposes tariffs on Canadian steel or aluminum, our Canadian exports to that market typically decline—sometimes dramatically. It is not unusual for companies to see sales to the United States drop by 30-40% within months of new tariffs being announced.

Global supply chains have become incredibly complex, with parts and materials often crossing borders multiple times before becoming finished products. A single component might face tariffs several times in its journey, with costs multiplying at each step.

For Canadian exporters, tariffs can:

  • Force price increases that make their Canadian products uncompetitive
  • Require costly paperwork to prove product origin
  • Create unpredictable shipping delays at border crossings
  • Necessitate expensive restructuring of supply chains

I recently consulted with a Mississauga-based auto parts manufacturer navigate insolvency after navigating effectively closed off their primary market. Despite having quality domestic products and efficient operations, the added tariff rates made their pricing untenable for American customers.

Effect on Domestic Markets

When Canadian companies can’t sell to the United States due to tariffs, they often redirect those Canadian products to the domestic market. This sudden increase in supply can drive down prices for Canadian competitors who have always focused on local sales.

I’ve seen this play out in several sectors:

  • A BC lumber producer facing decreased United States demand flooded local markets, driving down prices for everyone
  • Ontario steel fabricators who couldn’t export began undercutting each other in Canada
  • Food producers redirected export-quality products to domestic markets at reduced prices

While lower prices might seem positive for consumers, they can be devastating for Canadian businesses that suddenly face unexpected local competition. These market disruptions can push even well-managed companies toward financial crisis.

On the flip side, when the Government of Canada imposes retaliatory tariffs on United States goods, some Canadian producers benefit from reduced foreign competition. However, these benefits are often outweighed by higher input costs and general market uncertainty.

Influence on Consumer Prices

At the end of the day, Canadian consumers usually bear much of the burden of tariffs. When Canada places tariffs on United States products, the prices of those goods typically rise in Canadian stores. Products from kitchen appliances to food items have become more expensive for Canadian families.

Even goods not directly subject to tariffs often see price increases. For example:

  • When steel tariffs increase the cost of manufacturing equipment, companies pass those costs on through higher prices
  • When transportation companies pay more for vehicles and parts due to tariffs, shipping costs rise for all products
  • When businesses face higher costs for imported raw materials, they adjust pricing across their product lines

For families already struggling with household budgets, these price increases can push them closer to financial difficulty. In my practice, I’ve recently seen more clients citing rising prices as a factor in their financial troubles, with many specifically mentioning items affected by cross-border tariff rates.

The timing of these price increases can be particularly challenging. Unlike gradual inflation that allows for budget adjustments, tariff-related price jumps often happen suddenly. A refrigerator that cost $1,200 last month might be $1,500 today because of new tariffs—with no warning for the consumer who needs to replace a broken appliance.

For Canadian households and businesses already operating close to the financial edge, these unexpected price increases can be the tipping point that leads them to seek insolvency advice. When combined with potential job losses in tariff-affected industries, the overall impact on family finances can be severe.

The Real-Life Bottom Line On How the United States’ Tariff Policies Are Affecting Canadian Businesses

Many Canadian companies depend heavily on exporting to the United States market. When faced with tariffs, these businesses must make difficult decisions:

  • Absorb the extra costs, reducing their profits
  • Raise prices for United States customers, potentially losing sales
  • Cut costs elsewhere, often leading to layoffs
  • Seek new markets, for example, Asian countries, which takes time and investment

For example, Canadian steel and aluminum producers felt immediate impacts when the United States imposed tariffs on these materials. Many had to reduce production or lay off workers because their domestic products suddenly became less competitive in the United States market.tariff

The Ripple Effect on Canadian Jobs and Communities

When major employers struggle with tariff issues, entire communities can suffer:

  • Job losses lead to reduced consumer spending
  • Local businesses lose customers
  • Municipal tax revenues decrease
  • Housing markets may weaken

These ripple effects can touch nearly every aspect of Canadian economic life, creating financial pressure on individuals and families who may have never considered themselves at risk for insolvency.

From Business Struggles to Personal Financial Crisis

As a licensed insolvency trustee, I’m seeing more cases where tariff-related business challenges eventually lead to financial problems:

  • Business owners using personal credit to keep their companies afloat
  • Employees facing reduced hours or job loss
  • Suppliers and contractors not getting paid on time or at all
  • Retirement savings being depleted to cover immediate needs

Many Canadians are just one or two paycheques away from serious financial trouble. When tariffs disrupt their income or increase their expenses, the path to insolvency can be surprisingly short.tariff

Real-World Examples of Tariff Impact

Consider these scenarios I’ve encountered:

  1. A small manufacturing company in Mississauga that supplied parts to United States automotive plants saw orders drop by 30% after tariffs made their products less competitive. The owner maxed out personal credit cards trying to keep the business going before finally seeking insolvency protection.
  2. A family-run food importing business in Markham faced a double hit: United States tariffs reduced their Canadian exports while Canadian retaliatory tariffs increased costs on their imports. This squeeze on both sides of their business forced them to consider bankruptcy.
  3. A Toronto construction contractor who relied on American inputs found project costs rising unexpectedly due to the Trump tariffs, turning profitable jobs into money-losing commitments.

Warning Signs That Tariffs May Be Pushing You Toward Insolvency

Watch for these red flags in your personal or business finances:

  • Using credit cards or lines of credit to pay for everyday expenses
  • Struggling to make minimum payments on debts
  • Receiving collection calls about overdue accounts
  • Having suppliers demand cash on delivery
  • Experiencing sudden drops in sales or income related to cross-border businesstariff

How to Protect Your Financial Health During Trade Disputes

While we can’t control international trade policies, there are steps Canadians can take to reduce their vulnerability:

  • Diversify your customer or supplier base beyond the United States market
  • Build an emergency fund to weather temporary financial setbacks
  • Review your business model to identify areas where you can cut costs
  • Consider Canadian alternatives to United States products facing tariffs
  • Monitor your debt levels closely and address problems early

When to Seek Professional Help

If tariff-related financial pressures are becoming overwhelming, don’t wait until crisis hits to get help. As an insolvency professional, I find that early intervention often provides more options and better outcomes.

Consider seeking advice if:

  • You’re using debt to cover operating expenses
  • Your debt payments exceed 40% of your income
  • You’re considering drastic measures like cashing out retirement savings
  • You’re losing sleep over financial worriestariff

Looking Forward: Preparing for Future Tariff Uncertainty

Trade relationships between Canada and the United States have always experienced ups and downs. While we hope for stability, it’s wise to prepare for potential changes:

  • Stay informed about trade discussions and policy changes
  • Build flexibility into your business and personal financial plans
  • Consider financial stress testing for your business
  • Maintain good relationships with your financial institution

Frequently Asked Questions About Tariffs and Their Impact on Canadians

As a licensed insolvency trustee serving clients throughout the Greater Toronto Area, I receive many questions about how tariffs affect Canadian financial health. Here are straightforward answers to the most common questions:

What exactly is a tariff and why do governments use them?

A tariff is simply a tax that a country puts on goods coming in from another country. Think of it as an extra fee added to the price of imported products. Governments use tariffs for several reasons:

  • To protect local businesses by making foreign goods more expensive
  • To collect money for government programs
  • To gain leverage in negotiations with other countries
  • To try to balance trade between countries

When you see a “Made in Canada” product becoming more competitive against a similar American product, tariffs might be part of the reason.

How do US tariffs hurt Canadian businesses?

When the US puts tariffs on Canadian products, those products become more expensive for American customers. This creates serious challenges for Canadian companies:

  • American customers may buy fewer of their products
  • Companies might have to cut their prices and lose profit
  • Businesses often need to reduce costs, sometimes through layoffs
  • Finding new customers in other countries takes time and money

I consulted with a manufacturing client who saw their US orders drop by 40% almost overnight after new tariffs were announced. This sudden change can quickly push a healthy business toward financial trouble.

What’s the history of tariffs between Canada and the US?

Our tariff relationship with the US has changed dramatically over time:

  • After Confederation, Canada used high tariffs to protect our growing industries
  • The Auto Pact in 1965 began removing tariffs on vehicles and parts
  • The Free Trade Agreement in 1989 and NAFTA in 1994 eliminated most tariffs
  • For about 25 years, Canadian businesses operated with few tariff concerns
  • In 2018, the US surprised many by putting new tariffs on Canadian steel and aluminum
  • Canada responded with our tariffs on American products

This history matters because many Canadian businesses built their entire operation around tariff-free access to the US market. When tariffs suddenly return, these businesses often lack the financial flexibility to adapt quickly.

Why should Canadian consumers worry about tariffs?

As a consumer, tariffs directly affect your wallet in several ways:

  • Products imported from the US become more expensive when Canada applies tariffs
  • Even Canadian-made goods might cost more if they use American materials
  • Companies facing higher costs typically pass those costs to consumers
  • Price increases from tariffs often happen suddenly, making budgeting difficult

Unlike gradual inflation that gives families time to adjust, tariff-related price jumps can happen overnight. A family appliance that cost $1,000 last month might suddenly cost $1,200 because of new tariffs.

How do tariffs affect Canadian markets?

Tariffs change how goods flow within Canada in ways that aren’t always obvious:

  • Canadian companies that can’t sell to the US might flood the domestic market
  • This increased local supply can drive down prices for Canadian companies
  • Some Canadian producers benefit from less American competition
  • Supply chains become more complex and expensive
  • Certain regions or industries may be hit harder than others

For example, Ontario manufacturers may not be able to compete with suddenly cheaper local products when exporters redirected their goods to the Canadian market.

Can you share real examples of tariff impacts on Canadian businesses?

  • A Mississauga auto parts maker lost 30% of its US customers after tariffs made their products too expensive
  • A food importer in Markham faced challenges on both sides: US tariffs reduced their exports while Canadian retaliatory tariffs increased their import costs
  • A Toronto construction contractor saw project costs rise unexpectedly when tariffs increased the price of imported building materials

These aren’t just statistics—they represent real Canadian businesses and the families who depend on them.

What warning signs show that tariffs might be pushing you toward financial trouble?

Watch for these red flags in your personal or business finances:

  • Using credit cards or lines of credit for everyday expenses
  • Struggling to make minimum payments on debts
  • Receiving collection calls about overdue accounts
  • Having suppliers demand cash on delivery
  • Experiencing sudden drops in sales or income related to cross-border business

Recognizing these signs early can help you take action before a financial challenge becomes a crisis.

What can Canadians do to protect themselves from tariff impacts?

While we can’t control international trade policies, there are practical steps you can take:

  • Diversify your business beyond the US market
  • Build an emergency fund to handle temporary financial challenges
  • Look for Canadian alternatives to products affected by tariffs
  • Review your business operations to find cost-saving opportunities
  • Monitor your debt levels closely
  • Seek professional advice at the first sign of financial pressure

In my experience, clients who take action early have more options and typically achieve better outcomes.

When should I talk to an insolvency professional about tariff-related financial problems?

Don’t wait for a crisis to get help. Consider talking to a licensed insolvency trustee if:

  • You’re using debt to cover basic operating expenses
  • Your debt payments exceed 40% of your income
  • You’re considering using retirement savings to cover current expenses
  • You’re losing sleep over financial worries
  • Your business is experiencing tariff-related revenue drops

Remember, consulting with an insolvency professional doesn’t mean you’ll end up in bankruptcy. Often, early advice can help you find alternatives that protect your financial future.

Tariff Conclusion: Taking Control of Your Financial Future

Tariffs may be beyond our control, but our response to them isn’t. By understanding the risks, monitoring your financial situation closely, and seeking help early if needed, Canadians can navigate these challenging economic waters.

Remember, financial difficulty doesn’t automatically mean bankruptcy. A licensed insolvency trustee can help you explore all your options, from debt management strategies to formal proceedings like consumer proposals or bankruptcy protection.

Don’t let international trade disputes and stock markets determine your financial future. Stay informed, be proactive, and reach out for professional guidance when needed.

I hope you’ve found this tariff Brandon’s Blog helpful. If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance.

At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.

The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.tariff

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ECONOMIC RECESSION IN CANADA: IS CANADA’S ECONOMY HEADED FOR AN INTENSE RECESSION?

economic recession in canada
economic recession in canada

economic recession in canada

Economic recession in Canada: In Canada, the economy is under pressure

The economy in Canada is under pressure as the country deals with the fallout of the coronavirus pandemic. The pandemic has hit Canada hard. On one hand, certain Canadian businesses have shut down and people losing their jobs. On the other, there are job openings for other Canadian businesses. In August 2022, the unemployment rate in Canada increased from its record low in June and July, to 5.4%. The Canadian government has been working on trying to mitigate the damage and create supportable economic growth, but the economy is still struggling. The economic news is not good.

Coming out of the COVID economy there are many forces around the world causing global inflation. Supply chain shortages and the war in Ukraine are but two such global forces. Canada is experiencing inflationary pressures like every other country. Chief economists have mixed views on whether there will be an economic recession in Canada.

In response to the new global inflationary pressures, the Bank of Canada, like many other central banks, is raising its key interest rate regularly and significantly. The Bank of Canada is using its old domestic inflation policy rate fighting tools to fight these new pressures. It has promised more aggressive interest rate hikes. The federal government supports these rate hikes. Prime Minister Trudeau and his deputy chief, our Finance Minister and Deputy Prime Minister, Chrystia Freeland have said so.

As a result, the pressure on the economy is evident in the housing market. Home sales have dropped sharply, and house prices are also starting to fall. Notwithstanding the Bank of Canada’s key interest policy rate was designed to calm down a frothy real estate market, it is also a worry for the Canadian economy, as the housing market has been one of the bright spots in recent years.

The Bank of Canada’s inflation-fighting key interest rate policy tool has the potential not only to reduce inflation but if not closely managed, could throw us into a Canadian recession. We see financial markets, especially the stock markets, reacting negatively to this possibility.

Craig Wright, Senior Vice President & Chief Economist of Royal Bank of Canada believes Canada is headed for a recession, but that it will be a moderate one. So the ultimate question Canadians are asking is there a potential recession on the horizon or, how likely is an economic recession in Canada?

Economic recession in Canada: Bank of Canada believes that higher rates are essential to controlling inflation expectations

Higher interest rates ultimately force a contraction of the Canadian economy and an overall economic decline. The Bank of Canada really only has this one tool if it is going to act. Inflation is strong and is affecting longer-run business and consumer expectations. If inflation expectations rise, they can become self-fulfilling.

If inflation rates stay high, it can have very troubling economic impacts. Businesses will start charging more for their products. For things we need, we would have to pay more and would probably start asking for higher salaries and wages. If Canadians think inflation will go way past the Bank of Canada’s target, it could cause big problems with greater interest-rate hikes.

Both the US Fed and the Bank of Canada are increasing interest rates in an effort to control inflation. And neither bank is finished yet. The U.S. Fed and the Bank of Canada are expected to raise rates through to the end of 2022. That’s high enough to significantly restrict growth.

economic recession in canada
economic recession in canada

Economic recession in Canada: Although rates will eventually go down, they will not do so until inflation has cooled off

Although oil prices have been settling down and therefore prices at the pumps are falling, food and other consumer goods continue to have steady price increases. Continued increases eventually get to the point where they are unsustainable. Inflation won’t slow down until demand falls. Central banks will not ease interest rates until demand falls off sufficiently to reverse the current inflationary trends. If global economies cool off, it will help temper inflation.

Although labour shortages are preventing some expansion, many markets are still growing. However, disruptions from the pandemic continue to make it difficult for China to expand. Slowing growth abroad may have some negative effects on the US and Canadian economies as well.

The Bank of Canada will have to work very hard to find the right balance of interest rate hikes to cool inflation without causing an economic crisis or a recession.

Are we heading towards an economic recession in Canada and what can you do to help yourself?

I don’t know if the Bank of Canada’s current inflation-fighting efforts will force an economic recession in Canada, but Canadians have good reason to be concerned.

If you’re concerned about a recession in the near future, it’s important to be more mindful of your finances and think carefully about whether you can afford major purchases. What would happen if you were to lose your job or have an unexpected expense arise? It’s best to be prepared by carefully evaluating your savings and emergency fund now.

Your employment situation, savings, as well as spending practices can all contribute to how well you weather an economic downturn. Consequently, it is prudent to be prepared for bumpy rides by having a savings cushion and being mindful of living within your means. Additionally, those who are dissatisfied with their current employment or earnings may currently want to check out other opportunities prior to the Canadian economic situation worsening.

Douglas Porter, the Bank of Montreal chief economist, explains that how much Canadians feel the slowdown in the Canadian economy will depend on their individual circumstances. This includes what sector they’re employed in and whether they’re a borrower or saver.

One of the risks of a recession is the possibility of inflation eroding purchasing power and cementing in lower real wages. This is why it’s important to think carefully about asking for a raise now before a recession hits. Anyone considering a large purchase, like buying a home, must look at affordability.

Not only can you get the necessary financing to make the purchase, but can you afford the monthly payments? If you believe a recession is inevitable, then you should hold off making that real estate purchase because home prices inevitably will fall further in a recession.

economic recession in canada
economic recession in canada

What are 8 things you can do to prepare for an economic recession in Canada?

There are certain things Canadians can do to protect against an oncoming recession. It is not easy. It takes planning, belt-tightening and behaviour modification. Some possible steps include:

  1. Begin creating a household budget as soon as possible. This will help you to keep track of your income and expenses and help you make responsible financial decisions to not spend more than your household earns. Do not forget to use your family net income after accounting for income tax as your top income line.
  2. Now that you have your budget prepared, make sure you’re mindful of your spending and cut back where you can. Your budget needs to not only be break-even but there also needs to be a line for monthly savings.
  3. Credit cards can be useful when used properly. However, if you are using credit cards as a means to provide you with income that you do not earn, and increasing your credit card debt each month, this must stop. Lock your credit cards away, reduce your spending and eliminate your credit card debt.
  4. If you want to save money, you’ll have to cut back on eating out. Try to be mindful of how often you’re doing it, and you may be surprised at how much money you can save.
  5. Cutting back on your entertainment expenses is another way to reduce your spending. That means fewer nights out at the movies or out to eat, and maybe even skipping or cutting back on your various cable and streaming subscription services. It’s not going to be easy, but if you’re serious about saving money, it’s a necessary step.
  6. Take a critical look at your cell phone plan. Maybe there is a good deal on a more economical cell phone plan available. It is tough in Canada to do so because of the concentration of power by having so few Canadian providers, but that does not mean that you should not try.
  7. Do not incur new debt.
  8. Keep saving.

What if the economy in Canada is expected to experience a recession in the near future and you cannot hang on anymore?

We’re getting increasingly more telephone calls from people who state they or their companies have been hit hard by the pandemic, and they don’t see an escape. They applied for and received CERB payments. They really believed they qualified, and now the Canada Revenue Agency is reassessing their eligibility and demanding the money back.

We are getting calls from entrepreneurs. Their companies received CEBA loans but were unable to survive — their businesses had to close their doors even before an economic recession in Canada hit.

People are worried about what to do. These calls are coming daily. They are looking for answers to how they can bail themselves out of COVID-induced financial troubles, especially if there will be an economic recession in Canada.

Are you or your company in need of financial restructuring? Are you or your company insolvent due to a contract you may have entered into? Can you or your business not able to afford to make all your necessary debt payments, including mortgage payments?

The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. We know that we can help you the way we take the load off of your shoulders and devise a debt settlement plan.

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know. We will get you back to living a happy life, whether or not there is an economic recession in Canada.

Call us now for a no-cost initial consultation.

economic recession in canada
economic recession in canada
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IS CANADA IN RECESSION? MOST CANADIANS SAY YES TO AN INTENSE RECESSION

Is Canada in recession?

Statistics Canada recently released data showing that inflation rose to 7.7% year-on-year in May, up from 6.8% in April. This was the highest reading since January 1983 and well above the 7.3% expected by economists. The inflation index rose 1.4% from the previous month, with gasoline prices, hotel prices and car prices being the main reasons for the rise in May.

Many economists believe core measures are a better indicator of underlying price pressures, as it excludes food and energy costs. The recent average of this measurement, according to Statistics Canada, increased to 4.73% which is the highest level in the last 32 years! The worst news, their inflation expectations are not stopping.

In this Brandon’s Blog, I discuss is Canada in recession and look at what effect it might have on Canadians.

Is Canada in recession? What is a recession?

In the most basic terms, a recession is not only when economic growth is curtailed but is a period of economic decline marked by a contraction in economic activity. Most governments define a recession as two straight quarters in which the economy contracts by at least 1.5 percent. Economists define it as negative gross domestic product (GDP) growth. This definition doesn’t take into account consumer sentiment, but that’s an important metric to pay attention to since it affects consumer spending.

Fears of a recession have been rising in recent weeks as central banks around the world try to bring inflation down from the highest in decades by raising interest rates quickly. A new poll finds that nearly 8 in 10 Canadians believe the Canadian economy is in or near a recession. More than half of those Canadians are starting to cut back on spending to cope with the recession.

According to a recent survey of 1,517 Canadians by Yahoo and pollster Maru Public Opinion, a whopping 78 percent of respondents believe Canada is now in a recession or approaching a recession. Of those, 23% believe Canada will enter a recession within the next three months, while as many as 55% believe the Canadian economy is now in a recession.

is canada in recession
is canada in recession

Is Canada in recession right now? What the economists say

Canadian economists were surveyed by Finder on their inflation and economic recession expectations. Most said Canada has recession risk and is heading for a recession. They say we can expect it to happen anytime between 2023 and the first half of 2024. Most thought it would happen in the first six months of 2023, another quarter thought it would take a year to manifest. Economists have pointed to the pandemic, inflation and interest rate hikes as the reasons for the recession in Canada (isn’t the hot money only flowing into the housing market the reason for the recession?).

Finder explains how economists try to time recessions. Canada is headed for a normal summer as pandemic restrictions are lifted, but a new variant of the COVID-19 pandemic could emerge in the fall that could tip us into a Canadian recession by this time next year. What they cannot tell us is whether it will be a mild recession or a deep recession.

Why Is Canada likely to experience a recession?

In a single word – inflation. Inflation is rising and our federal government is doing nothing to quell the inflation expectations. This is causing the Bank of Canada to try to tame inflation by raising interest rates. This increases the risk of a recession. In fact, many economists told Finder they expect “aggressive” rate hikes in the coming year. Most of those polled believe there will be at least four more rate hikes this year.

Fears of a recession have been rising in recent weeks as central banks around the world try to bring inflation down from the highest in decades by raising interest rates quickly. The Bank of Canada is one of the central banks trying to restore soaring inflation to its target range of 1% to 3%. On June 1, the Bank of Canada announced a rate hike of 0.5%.

The timing of the recession is not easy to grasp, and much depends on what happens with Russia’s invading Ukraine. Murshed Chowdhury, an associate professor at the University of New Brunswick, expects the recession to continue into the first half of 2024. How long the supply-side problems will last and the escalation of the Russian-Ukrainian war will play a big role in deciding how things turn out.

The rise in prices causing inflation can be attributed to a number of factors, including poor fiscal management by the federal government. Other factors include record highs in commodity prices such as oil and wheat. Unfortunately, wage growth for most Canadians has not kept pace with inflation. Wages have risen 2.7% over the past two years, compared with inflation of 3.4% over the same period.

is canada in recession
is canada in recession

Is Canada in recession? What will happen to the economy of Canada?

Consumer prices in Canada accelerated to their highest level in 40 years, Bloomberg reported, adding pressure on the Bank of Canada to continue aggressively raising interest rates in the coming weeks.

Markets are almost entirely confident that the Bank of Canada will raise interest rates by 75 basis points next month, which will lift its policy rate to 2.25%. The rate is expected to be as high as 3.50% by the end of the year. The preferential loan interest rate offered by commercial banks is usually more than 2 percentage points higher than the policy interest rate.

Prime Minister Justin Trudeau’s government has also come under pressure from opposition parties and economists to do more to contain inflationary pressures and help households offset the cost of living, though the Trudeau government has been wary of any new measures.

Like other countries, Canadian households have been hit by record gasoline prices and soaring food prices. After a slight pullback in April, gasoline prices surged again in May, rising 12% for the month and 48% from a year earlier. Food prices rose by a smaller 0.8% in May but were up 8.8% from a year earlier.

Given that gasoline prices rose further in June, the 7.7% annual figure may not even be representative of the peak annual price increase. There were more signs that imported inflation was affecting domestic prices, with the cost of services rising 5.2 percent from a year earlier, the fastest pace of growth since 1991.

The cost of living is rising twice as fast as the average Canadian wage, creating significant headwinds for the economy. Unfortunately, the Canadian government and the Bank of Canada are treating this as if inflation is all caused by domestic factors when it is really global. Raising interest rates aggressively, an old tool, cannot solve a globally induced imported inflation spike.

The inflation we are experiencing now is a result of all the shocks to the Canadian economy: COVID-19, monetary policy-induced recession factors when the Bank of Canada kept interest rates at their lowest ever levels during the COVID-19 pandemic, the supply side problems because every major world economy effectively shut down for the better part of 2 years, the war in Ukraine causing shortages and therefore price spikes. None of it is a Made In Canada problem, yet the Bank of Canada and the federal government are treating it as if it was homegrown.

Is Canada in recession? What happens if we experience a recession?

Canadians’ purchasing behaviour is already beginning to change. A poll conducted by Nanos Research for Bloomberg News indicates:

  • 52% of Canadians surveyed say they have adjusted their spending habits, set stricter priorities and started consciously spending less in the past month.
  • The majority of Canadians expressed concern about the state of the economy, with 62 percent of Canadians believing that the Canadian economy was on the wrong track.
  • Rising prices have led 32 percent of Canadians to believe they are in a worse financial position than they were the previous month. Only 8 percent of Canadians said their situation had improved.
  • Regionally, the poll showed that residents of Atlantic Canada and Western Canada are particularly concerned about the economy.
  • In the Atlantic region, 75% of respondents believe the Canadian economy is heading in the wrong direction; in Manitoba and Saskatchewan, 77%; in Alberta, 66% of people hold this view.
  • 41 percent of Canadians said they were in a worse financial position today than they were last year. This is the second-highest reading since 2008.

This consumer sentiment, runaway inflation and the Bank of Canada and the federal government using old tools to fix a new problem will have negative consequences for Canadian businesses. Consumer spending which previously fueled the Canadian economy, now reduced consumer spending, this will most likely place is Canada in recession.

Lower company sales will lead to job losses and our record low unemployment rate will increase possibly to a new high when the current job market changes for the worst during a recession. Business investment will be reduced and what investment is made, will be more in systems and technology than people. There will be a resultant drop in GDP. Certain asset categories will drop dramatically in price as capital flees places like the Canadian stock market for investments seen to be safer.

is canada in recession
is canada in recession

Is Canada in recession? How to protect yourself from a recession

Our spending and investing habits directly impact the economy. This year so far, it’s been a rough ride. However, the majority of how a recession affects us is within each of our own control. The rest of it, the minority is because of forces beyond our control.

The economy will vary from year to year. Our spending, saving and investing habits directly impact the economy. It is important for all of us to make smart financial decisions now so we can weather the storm when the economy dips. Is Canada in recession? Based on the above, not right now, but, it could be soon. Here are my tips on how to protect yourself from a recession.

It’s important to have an emergency fund

When a recession hits, you can get fired and the value of your investments can plummet. One of the best ways to protect yourself from financial distress or additional debt is to increase your emergency savings.

That way, even if there are unexpected expenses, or your income is affected, you’ll have a cushion to protect yourself and your family. I always recommend having an emergency fund that allows you to survive for a 6-month period.

Boost your employment prospects

When a recession hits, job security can be at risk. To safeguard your income, you should consider finding a side hustle in addition to your regular job. This can serve two key purposes—helping you grow your emergency fund and providing you with extra income.

You should focus on developing job skills that will help improve your chances of not being laid off. Time management, communication, and attention to detail are all important skills to focus on.

Budgeting

Look at your family household expenses. Cut back on anything that is not necessary spending. If necessary, use cash to pay for purchases and not a credit card. We tend to spend less when we have to count it out in cash rather than tapping or swiping a card.

That way your money will go much further. Remember, during a recession, cash is king!

Pay down debt

Do everything you can to pay down your debt before a recession hits. The more debt you have, the more of your money goes to interest payments. If you have variable rate loan debt, as the Bank of Canada continues to crank up interest rates, the cost of that debt increases.

If you have fixed-rate debt and it comes up for renewal time, say like your house mortgage, you will be forced to renew at a higher interest rate. So, by paying down debt, you are insulating yourself as best as possible against the negative effects of the recession on your outstanding debt.

The economy may or may not slip into a recession but based on what the economists believe, more likely than not, eventually, it will. Recessions can last for a long time, or they can end quickly. However, the more prepared you are, the lower your chances of suffering a prolonged financial shock in the aftermath.

You may also want to read 2 other Brandon’s Blogs:

Is Canada in recession? What if your debt is too much for you?

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is canada in recession
is canada in recession
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