Trade Wars, CUSMA and Your Property

There are two things you should know and commit to memory before reading further.  First, Waterloo Region is one of the areas in Canada that will most feel the impact of trade disruptions.  Secondly, in order for real estate to work, money is needed.  Often lots of it. 

Investors need to part with that money to buy buildings.  In order for them to be convinced to do that they must believe that a) the sky is not falling and they will not get better a better deal if they wait 6 months for things to get (even) worse, and b) be reasonably confident someone will be able to pay them rent.    

The goal today is to try and put the current trade dispute(s) into some kind of context and explore how real estate will be affected both from a Landlord and home owner's perspective.

Part 1: What Actually Happened With CUSMA

Start with the event that put trade back on the front page. On July 1, 2026, the United States declined to confirm it would extend CUSMA, the free trade agreement between Canada, the United States and Mexico, for a further 16-year term. It said it did not agree to renew the deal in its current form. That sounds alarming, and plenty of headlines treated it that way, so it is worth being precise about what it did and did not do.

What it did not do is cancel the agreement or change a single tariff overnight. CUSMA remains fully in force. All of its preferential tariffs, rules of origin, investment protections and dispute mechanisms are intact, and the deal does not expire until 2036. What the July 1 decision did do is trigger an annual joint review. Instead of one renewal every sixteen years, the three countries now have to sit down and re-approve the agreement every single year until they either agree on a longer extension or it lapses in 2036. We have effectively swapped one big cliff a decade away for a series of smaller annual cliffs starting now. The result is not a shock so much as a permanent low hum of uncertainty, and uncertainty is the enemy of the big decisions that drive real estate: hiring, building, and buying a home.

Here is the number that matters for a property owner. Roughly 90 percent of what the United States buys from Canada still crosses the border duty free thanks to CUSMA. That is the shield. If those protections were ever allowed to lapse, the average effective US tariff on Canadian exports could roughly double, from about 3.2 percent in early 2026 to around 6.6 percent. That is the difference between a manageable irritant and a real drag on the employers who sign a lot of Ontario paycheques.

The real fight, though, is not about that broad average. It is about specific sectors, and this is where it gets personal for our region. The United States has kept steep sectoral tariffs on Canadian steel and aluminum, on autos and auto parts, and on softwood lumber. Those are precisely the goods that Ontario, and Waterloo Region in particular, actually makes. Canada has answered with its own countermeasures on a long list of US products, which raises costs on this side of the border too. The annual review means each of those sectoral tariffs is now a bargaining chip that gets re-litigated every year, so the uncertainty is not going away soon.

Part 2: The Four Ways Trade Policy Reaches Your Property

Tariffs never knock on your door directly. They reach your home and your rental through four channels: jobs, construction costs, interest rates, and population. Let me take each one in turn, because homeowners and landlords feel each one differently, and because each one shows up somewhere in our local data.

Channel 1: Jobs and Incomes

This is the most direct channel and the one that matters most for buyer demand. Ontario is the manufacturing heart of the country, and manufacturing is exactly what the tariffs target. Waterloo Region is a case study in that exposure. Manufacturing employs roughly 17 percent of our local workforce, about 57,000 people across some 1,850 companies, which makes us one of the largest manufacturing centres in Canada. When tariffs raise the cost of selling a Canadian-made part into a US plant, the pressure lands on shop floors right here.

The province's independent Financial Accountability Office estimates that US tariffs will leave Ontario with roughly 119,200 fewer jobs in 2026 than it would otherwise have had, and will push the provincial unemployment rate up by about a full percentage point over the next several years. The damage is concentrated in the metals, auto parts, and machinery industries that anchor so much of our regional employment.

You can already see the strain in the local labour numbers. The Kitchener-Cambridge-Waterloo unemployment rate has been running around 8.2 percent in early 2026, above the Ontario average near 7.3 percent and the national figure closer to 6.5 percent. Tech-sector restructuring, once our great growth engine, has piled on top of the manufacturing pressure. It is worth keeping perspective, though. If about one in six local jobs sits in manufacturing, roughly five in six do not. Health care, education, public services, the trades, finance and a deep professional and technology sector all serve mostly local and domestic demand, and that diversity is a genuine shock absorber. This is not a one-industry town, and it never has been.

What it means for homeowners:

A softer job market means a smaller pool of confident, mortgage-qualified buyers. That is a big reason CMHC singled out Ontario as the one province where home prices are expected to actually dip in 2026, by about 1.4 percent, while most of the country sees small gains. It is not a crash. It is exactly what our June data showed: prices grinding in a flat band rather than climbing. That rewards patience, and it hands buyers negotiating room they have not had in years.

What it means for landlords:

Tenants employed in trade-exposed industries face more layoffs and slower wage growth, which raises the risk of missed rent and turnover. If your tenant base skews toward manufacturing or the suppliers that feed it, build a little more caution into your underwriting this year, and treat a good, stable tenant as the asset they are.

Channel 2: Construction and Renovation Costs

Here is the channel most owners overlook. The very same tariffs on steel, aluminum and lumber, combined with Canada's retaliatory measures, land directly on the cost of building and renovating. Industry cost analysts estimate that trade measures have added somewhere in the range of 8 to 12 percent to total construction project costs, depending on how material-heavy the job is. Structural steel and metal fabrications have seen the sharpest increases, which hits mid-rise and multi-family construction hardest of all.

Layer that on top of a local supply story I have written about before. The Region of Waterloo's water-capacity limit has paused approvals on many new developments across Kitchener, Waterloo and Cambridge, and condo starts are already running low. Add tariff-inflated build costs to a constrained approvals pipeline and the math is simple: less new housing gets built in the next few years than we need.

What it means for homeowners:

Renovation or addition you are planning costs more than it did two years ago, and quotes are less stable, so get them in writing and build in a contingency. The silver lining is real, though. Pricier and scarcer new construction quietly supports the value of the existing home you already own, because your competition is more expensive and slower to arrive.

What it means for landlords:

Higher build costs make new purpose-built rental harder to justify, which limits future competing supply and supports rents over the medium term. In the short term it also makes value-add renovations and unit turnovers pricier, so plan your capital budget carefully and prioritize the improvements that actually move rent or retention.

Channel 3: Interest Rates and the Oil Shock

Trade tension has not travelled alone. It arrived alongside a 2026 oil price shock, driven by conflict in the Middle East and disruption to shipping through the Strait of Hormuz, which handles about a fifth of the world's oil. That energy spike lifted inflation expectations, and with them, bond yields. The Bank of Canada has held its policy rate steady at 2.25 percent, which is good news for variable-rate borrowers. But the fixed side of the market takes its cue from bond yields, not the Bank, and those yields have pushed 5-year fixed mortgage rates back up toward the mid-4 percent range. In fact, CREA pointed directly at this chain of events, the oil spike lifting yields and fixed rates, when it trimmed its 2026 forecast.

What it means for homeowners:

If you are shopping or renewing, the gap between variable and fixed is worth a real conversation with your broker rather than a default choice. Variable borrowers are benefiting from the Bank's pause, while fixed borrowers are paying for the oil-driven jump in bond yields.

What it means for landlords:

Financing cost is the single biggest swing factor in your returns. With fixed rates elevated, deals underwritten on cheap debt no longer pencil, and refinancing a maturing mortgage can turn a cash-flow-positive building into a break-even one. Stress-test every upcoming renewal against a rate that starts with a 4 or a 5, and know your numbers before the lender does.

Channel 4: Population and Rental Demand

This is the channel that matters most to landlords, and it has moved faster than any of the others. In response to the affordability crisis, Ottawa has sharply cut immigration. The target for new temporary residents, the students and workers who fill a large share of rental units, falls from 673,650 in 2025 to 385,000 in 2026, a drop of about 43 percent in a single year. Permanent resident targets have come down too, to roughly 380,000. For the first time in a very long time, Canada's population actually shrank slightly in early 2026 and is expected to be broadly flat this year.

Fewer newcomers means less pressure on a fixed stock of rental housing, and the rental market has already turned. Average asking rents have fallen for more than a year, vacancy rates across Ontario's major cities have climbed above their ten-year averages, and a wave of investor-owned condos listed for rent has added even more supply. The days of naming your price and fielding ten applications in an afternoon are, for now, behind us.

This connects straight back to our local June numbers. In the monthly report, condos were the clear soft spot: nearly nine months of supply, the biggest year-over-year price declines, and the only segment selling below its list price. That is not a coincidence. The condo market is where the investor-owned rental supply and the immigration pullback collide most directly. If you own a freehold home or a semi, you are in the tightest, most resilient part of our market. If you own a condo, especially a small one aimed at students, you are standing in the exact spot where the national rental story is landing hardest.

What it means for landlords:

Underwrite for flat-to-lower rents and a longer vacancy between tenants, not the automatic annual increases of recent years. Quality, condition and fair pricing now win tenants. Well-kept two-bedroom units in family-friendly locations have held up best, while small studios are the most exposed. The medium-term story is more encouraging: constrained new supply plus an eventual return of population growth should firm rents again, but 2026 and 2027 are a tenant's market, so plan for retention over rent maximization.

Part 3: The Global Backdrop

None of this is happening in a Canadian bubble. The OECD and the IMF have both flagged the global trade war as the single biggest risk to growth in advanced economies this year, and both singled out Canada, with its deep trade exposure to the United States, as one of the more affected economies. The OECD expects Canadian growth to slow to roughly 1.2 percent in 2026 before recovering toward 1.7 percent in 2027, as the initial shock is absorbed and government infrastructure and defence spending help take up the slack.

The Bottom Line for Ontario Owners

Put the four channels together and a consistent picture emerges. Trade disputes and the CUSMA review are a real headwind, but a slow, grinding one rather than a cliff. They soften local jobs and incomes, raise the cost of building, keep fixed borrowing costs elevated, and, through sharply lower immigration, take the heat out of the rental market. The net effect is exactly what our June market report described: a market that is flat, patient and healing, rather than booming or breaking.

For homeowners, that argues for a long view. Your equity is unlikely to surge this year, but the very same forces limiting new supply, from tariff-inflated build costs to the water-capacity development freeze in our own backyard, are quietly supporting values underneath. If you are buying, you have negotiating room you have not seen in years.

For landlords, 2026 is the year to prioritize retention over rent maximization, to stress-test every mortgage renewal, and to hold quality units rather than chase the top of the market. Demand will return as immigration normalizes and supply stays constrained, but the next couple of years reward the patient and the well-capitalized.

As always, the regional picture matters as much as the national one, and the details of your own street matter most of all. For the month-to-month local numbers, see my latest Waterloo Region Residential Market Report, and for more on the local supply squeeze, my development freeze update. If you want to talk through what all of this means for your specific home or building, get in touch. It is exactly the kind of conversation I enjoy.

Terry Riddoch

If you would like to talk through how any of this applies to a building you own or one you are considering, I am always happy to walk through the numbers.

Terry Riddoch
Real Estate Broker -- Multifamily and Investment Properties, Ontario

Phone: 519 591 1725
Email: [email protected]
Web:www.terryriddoch.ca

Sources

CUSMA review: White & Case; RBC Economics; CSIS. Sectoral tariffs: Global Affairs Canada. Ontario jobs and GDP: Financial Accountability Office of Ontario. Construction costs: Altus Group. Rates and bond yields: Bank of Canada; Ratehub. Immigration and population: IRCC; Parliamentary Budget Officer. Rental market: CMHC; RBC Economics. Housing forecasts: CMHC Housing Market Outlook; CREA. Global growth: OECD Economic Outlook; IMF World Economic Outlook.