RBC economist Robert Hogue explained why tariffs as a tool to fix trade imbalances is "absolutely disconnected from reality" at CPBI seminar

While it’s getting clearer that Canada could be hit with tariff imposition as early as next month, RBC Assistant Chief Economist Robert Hogue believes that blanket 25 per cent tariffs on Canadian goods are unlikely.
“If we put in a 25 per cent tariff on Canada, we’re looking at effective tariff rates in the US above 12 per cent,” he said, emphasizing that this would inevitably lead to higher consumer prices. “This time around, US consumers would not be immune to the impact.”
At CPBI’s annual Economic Outlook seminar on Tuesday, Hogue expressed the firm’s base case scenario to a room full of Canadian pension plan sponsors, administrators, trustees, asset managers and other retirement income system leaders. Hogue began his keynote speech to question the strategic rationale behind such tariffs, pointing to a similar decision the previous Trump administration made to impose tariffs against China.
“Tariffs, especially against China, did not do anything to balance the trade deficit,” he said, adding that President Trump’s notion of tariffs as a tool to fix trade imbalances is “absolutely disconnected from reality.” Canada’s economy is also particularly vulnerable due to its deep integration with U.S. markets, Rogue said, asserting that Canada is “very dependent on our trade relations with the US. Our exports and imports represent a very large share of our GDP, and therefore economic activity, jobs, and government revenues,” he said.
One area of particular concern is the automotive sector, which exemplifies the level of integration between the two economies. “Parts cross the border seven, eight, sometimes up to ten times… This would make costs balloon and would render the entire supply chain completely uncompetitive,” Hogue explained. The ripple effects of such tariffs, he added, wouldn’t just harm Canada but would also severely impact US manufacturers reliant on Canadian inputs.
The political landscape further complicates the situation. While tariffs may play well with certain constituencies, Hogue suggested that they could backfire in key swing states that depend heavily on trade with Canada. “Think of swing states that put Trump back into the White House. Many of them depend quite heavily on trade with Canada… feeding into their own supply chains and jobs,” he said.
However, the economist also highlighted a significant challenge facing forecasters on whether to include the prospect of tariffs in their base-case economic scenarios. RBC, for now, is treating them as a downside risk rather than a central assumption, though Hogue admitted that this stance is becoming “less and less realistic.”
Some institutions, he added, have opted for a more cautious approach. “There’s another bank that decided arbitrarily, ‘Okay, what’s the worst-case scenario? It’s 25 per cent tariffs on all Canadian goods and services. Good, let’s split in half, assume 12 per cent tariffs.’” RBC Econonmics, by contrast, remains hesitant to incorporate speculative figures into its models.
“Our base case still does not retrieve the 25 per cent tariffs or any kind of significant tariffs on Canadian exports as an alternative to our base case scenario. A big reason for that is that we think a massive 25 per cent tariffs on Canada and Mexico is going to be damaging to the US economy.”
Hogue also pointed to potential exemptions as a mitigating factor, should tariffs come to pass. “Ultimately, we think there’s going to be lots of exceptions. Think of energy, think of many kinds of intermediate manufacturing goods,” he said. “The actual outcome will not be as bad as some fear at this time.”
Still, Hogue described the situation as “puzzling,” particularly given Canada’s relatively small role in the U.S. trade deficit. “If you remove oil from the equation, the U.S. has a trade surplus with Canada,” he said, underscoring the disconnect between economic realities and political rhetoric. “It's something our politicians have been advocating for quite strongly in Washington and especially amongst the various states, and the US independently trades with us. Nonetheless, it's where we are.”