When Nobody Knows What Happens Next: Tariffs and Canadian Real Estate

The most dangerous thing about the tariff war may not be the tariffs. It may be our need to pretend we know what happens next.

Everybody's talking about tariffs, and I've noticed that whenever uncertainty increases, our need for certainty seems to increase with it. Suddenly everybody knows who's to blame, what the U.S. is doing, how Canada should respond and, perhaps most remarkably, what's going to happen next.

Part of the reason may be that certainty gives us a sense of safety. If we can convince ourselves that we know who's right, who's wrong and what happens next, we feel a little more in control. But feeling certain doesn't mean we're right.

People much smarter than you and me are wrestling with these issues. Economists don't agree. Business leaders don't agree. Governments certainly don't agree.

So maybe we need to ask a better question. Instead of asking, "Do I know how this ends?" maybe the better question is, "Do I understand what's happening well enough to make good decisions while it's happening?"

That's a very different question, and for those of us who invest in real estate, it's an important one.

I'm not particularly interested in becoming an expert on tariffs. I'm interested in understanding what tariffs do to behaviour—and what that behaviour might eventually do to real estate.

What Actually Happens When You Impose a Tariff?

A tariff is simply a tax on something being imported into a country. Let's use General Motors as an example. If GM builds a vehicle in Canada and brings it into the United States, and that vehicle is subject to a tariff, the importer pays the additional cost.

But that's only the beginning of the story, because the important question isn't who writes the cheque at the border. It's who ultimately pays?

Maybe GM absorbs some of the cost, reducing profitability and ultimately affecting shareholders. Maybe it increases the price and consumers carry some of it. Or maybe it changes where and how it manufactures. Most likely, it's some combination of all three.

But GM doesn't operate by itself. It's competing with Ford, Toyota, Honda and everybody else trying to sell vehicles into the same market. If GM's costs go up 20%, it can't necessarily raise prices 20%. What happens if Ford doesn't?

That's competition, and competition can do something we don't talk about enough in this tariff conversation. It can force companies to get better.

If you can't simply pass every additional dollar onto consumers, you have to look inside your business. Where are we wasting money? Can we manage better? Can we improve our supply chain? Can we automate? Can we innovate?

And there's something particularly interesting about the timing of all this. Tariff pressure is arriving at exactly the same time AI is giving companies entirely new ways to become more efficient.

If margins are being squeezed, suddenly the AI project that's been talked about for three years becomes more urgent. Can we automate this process? Can we operate with fewer people? Can we eliminate unnecessary layers of management? Can technology do work we're currently paying people to do?

Economic pressure can accelerate innovation, and that's potentially good for productivity. But there's another side to it. What happens to employment if companies respond to this pressure by becoming leaner, automating faster and requiring fewer people?

That's where the connection to real estate starts becoming particularly interesting.

Uncertainty Changes Behaviour

If businesses don't know what the rules are going to look like six months from now, they hesitate. If consumers aren't sure about their jobs or where prices are going, they hesitate. If somebody is considering buying a $900,000 house and suddenly becomes nervous about the economy, they wait.

If enough people wait, markets change.

One of the biggest effects of this tariff fight may not simply be the tariffs themselves. It may be the uncertainty they create.

Does that mean Canadian house prices are going to fall? I don't know, and I'm deliberately saying I don't know.

GDP matters. Interest rates matter. Employment matters. Immigration matters. Housing supply matters. Household income matters. Access to credit matters. Anyone who tells you one variable determines what happens next in Canadian real estate is making this far too simple.

It's the same with rents. Economic weakness puts pressure on what people can afford. If groceries cost more, cars cost more, appliances cost more and other parts of life cost more, households don't magically have more money available for rent. Something has to give.

But at exactly the same time, if people can't afford to buy houses—or they're too nervous to buy—they remain renters longer. That supports rental demand.

So which pressure wins?

I don't know yet. And that's the point.

As investors, we don't need to manufacture certainty where certainty doesn't exist. We need to know what to watch: employment, whether businesses are investing or pulling back, consumer confidence, interest rates, home sales and, of course, what's actually happening to rents.

Then we adjust.

Now Let Me Become a Little More Opinionated

Canada needs to be extremely thoughtful about how we respond to the United States. There's a lot of rhetoric around fighting back: they tariff us, we'll tariff them. Tit for tat. I understand it, and I'm certainly not suggesting Canada shouldn't defend its interests.

But let's acknowledge reality. The United States needs things from Canada. We have oil, natural gas, electricity and other resources they need.

But economically, we need them more.

And I think the numbers make that very difficult to argue with.

In 2025, 71.7% of Canada's merchandise exports went to the United States. In other words, almost three out of every four dollars of goods we exported went to one country. (Source: Statistics Canada — https://www150.statcan.gc.ca/n1/daily-quotidien/260219/dq260219a-eng.htm)

Now look at the relationship from the other direction.

Canada is an enormously important trading partner for the United States. But we're a much smaller part of their overall trading world. As an illustration, U.S. Census Bureau data for January 2025 showed Canada accounting for 13.5% of total U.S. goods trade. Canada was the second-largest U.S. trading partner that month, behind Mexico. (Source: U.S. Census Bureau — https://www.census.gov/foreign-trade/statistics/highlights/top/top2501yr.html)

That's the imbalance we need to understand.

Almost 72% of our merchandise exports went to one country. Meanwhile, Canada represents a much smaller share of America's total goods trade. The American economy is also enormously larger and has a much broader trading base.

That doesn't mean Canada doesn't matter to the United States. We absolutely do.

U.S. goods trade with Canada was approximately US$715.5 billion in 2025. Canada remains one of America's largest trading partners. (Source: Office of the U.S. Trade Representative — https://ustr.gov/countries-regions/americas/canada)

So this isn't an argument that America doesn't need Canada.

It's an argument about relative dependence.

We depend on access to their market much more heavily than they depend on access to ours.

That's why I think we need to be careful with the rhetoric around a trade war. This isn't an equal fight. That doesn't mean Canada surrenders, and it certainly doesn't mean we shouldn't defend Canadian interests.

It means we better be smart about how we do it.

Why Don't We Just Trade With Someone Else?

And yes, Canada should diversify its trading relationships. But saying, "We'll just sell somewhere else," is much easier than actually doing it.

Where are we going to sell? Who's going to buy it? At what price? And how long does it take to rebuild supply chains and trading relationships that have developed over decades?

Interestingly, diversification is already happening to some degree. Statistics Canada reported that Canadian merchandise exports to countries other than the United States increased 17.2% in 2025, while exports to the United States declined 5.8%. (Source: Statistics Canada — https://www150.statcan.gc.ca/n1/daily-quotidien/260219/dq260219a-eng.htm)

That's significant.

But even that number needs some context. Statistics Canada has pointed out that a substantial portion of the increase in non-U.S. exports came from higher shipments of precious metals, particularly gold and other safe-haven metals. So we shouldn't look at one year's increase and conclude that Canada has suddenly replaced the American market. (Source: Statistics Canada — https://www150.statcan.gc.ca/n1/pub/36-28-0001/2026004/article/00005-eng.htm)

Diversification also creates other questions. If part of our response means becoming substantially more economically dependent on China, for example, there are economic and geopolitical consequences to that. What does that do to our relationship with the United States?

There's also a values question Canadians should be willing to wrestle with. We talk a lot about the environment, human dignity and human rights. Good. Then those values should also matter when we're deciding who we trade with and who we become economically dependent upon.

Again, there's no simple answer.

And that's actually the point of this entire conversation.

Judgment, Not Certainty

I don't know how this tariff fight ends. You probably don't either, and neither do many of the people speaking with absolute certainty about it.

But leadership doesn't require certainty. It requires judgment.

Judgment is the ability to look at what's happening, separate the noise from the signal, change our minds when the facts change, and make the best decisions we can with the information we actually have.

That's how I think we should approach tariffs. And it's how we should approach the real estate market.

Don't become a pundit. Pay attention.

Because good investors aren't paid for being certain. They're paid for exercising judgment when the answer isn't obvious.