Tariff and other assumptions

Average US tariff rates decreased recently, both globally and in Canada. But the future of trade in North America remains a key source of uncertainty. The war in the Middle East has pushed global oil prices up sharply.

Tariff assumptions

In February 2026, US tariffs imposed under the International Emergency Economic Powers Act were removed by court order. The United States immediately replaced them with a uniform 10% tariff on all imports not covered by a trade agreement. These changes reduce the increase in tariffs that many countries have been facing since the start of 2025. As a result, the increase in the global average US tariff rate is revised down from 12.5 percentage points in the January Report to 9.3 percentage points (Chart 14).

The projection is based on tariffs in place or officially agreed on as of April 24, 2026 (Table 1).1 Reflecting recent developments, the average US tariff rate on imports from Canada is lowered to 5.1% from 5.8% in the January Report. In contrast, Canada’s average tariff rate on US imports has been revised up to 1.5% from 1.2%, reflecting the end of some steel tariff remissions on January 31, 2026. Tariffs in the base-case projection include those set out in Canada’s agreement with China.2

* These tariff rates include the impact of Canadian tariff remissions.

Other assumptions

The projection is also conditional on several other assumptions.

• Brent oil prices have recently hovered around US$100 per barrel. Prices are assumed to be US$90 in the second quarter of 2026 and then settle around US$75 by mid-2027 as crude exports through the Strait of Hormuz resume. This profile is broadly in line with the futures curve. Prices of West Texas Intermediate and Western Canadian Select are assumed to follow a similar path, stabilizing at US$70 and US$60, respectively, by mid‑2027. These price assumptions are US$15 higher in 2027 than those in the January Report. This reflects a higher risk premium, strong demand to rebuild global inventories and a slow resumption of supply due to the war.
• Investment and employment in the oil sector in Canada are assumed to be less responsive to higher oil prices than in the past, reflecting greater emphasis on dividend payments in the energy sector and improved capital efficiency.3
• The Canadian dollar is assumed to average 73 cents US over the projection horizon, up 1 cent US from the January Report. So far, the Canadian dollar has moved less than in previous oil price surges. This likely reflects expectations that the increase in oil prices will be short‑lived, and that it will lead to larger dividend payments to foreign shareholders in the energy sector and a smaller rise in foreign direct investment. Increased demand for safe-haven assets due to the war is also a factor.
• Potential output growth in Canada is expected to slow to 1.2% in 2026. This reflects slower population growth and the impact of US trade policy. Potential output growth picks up to 1.3% in 2027 and 1.5% in 2028 as investment recovers. The adoption of artificial intelligence is also expected to raise productivity (see Appendix: Potential output and the nominal neutral rate of interest).
• The nominal neutral interest rate in Canada is estimated to be in the range of 2.25% to 3.25%. The projection assumes the nominal neutral interest rate is at the midpoint of this range.
• The impact of trade policy uncertainty on gross domestic product is assumed to ease slowly in 2026.
• In all countries, three‑quarters of the increased costs from tariffs are passed on to consumer prices within six quarters.
• The projection for Canada incorporates information from the latest provincial and federal budgets that have been tabled as of April 27, 2026.

Endnotes