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By Dean Brown.
Good morning,
Canada’s economy is getting a little harder to read.
We just learned that the country lost 42,000 jobs in August. Normally, that would make you think interest-rate cuts might be getting closer.
Instead, the Bank of Canada is warning that the next move could eventually be up.
At the same time, Ottawa is talking much more openly about keeping Canadian resources, manufacturing and infrastructure here instead of automatically building everything around the U.S.
Those stories look separate.
I don’t think they are.
Canada Lost 42,000 Jobs. So Why is the Bank Talking About Rate Hikes?
Canada lost 42,000 jobs in August, with most of the decline coming from full-time employment.
Ontario lost about 18,000 positions and Quebec another 19,000, while youth unemployment remained particularly weak at 12.9%.
But the unemployment rate stayed at 6.4% because the labour force also got smaller. And August’s decline comes after Canada added roughly 181,000 jobs between April and July, so this looks more like a sharp cooling after a strong summer than a labour-market collapse. Manufacturing actually added 22,000 jobs.
I also wouldn’t pin this on Trump’s newest tariffs yet. Those only began on August 22, far too late to explain most of the monthly report.
The real test comes over the next couple of months. If trade-exposed businesses begin cutting shifts, freezing hiring and laying people off, that will tell us considerably more.
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🏦 And somehow the Bank is worried about inflation
Here’s the contradiction. The Bank of Canada just held its policy rate at 2.25%, but Tiff Macklem is now openly warning that rates could eventually need to rise if inflation stays too high.
Headline inflation is around 3%, but that number needs context. Without gasoline, inflation was only 2.2% in July, while the Bank’s measures of underlying inflation are around 2%.
The immediate problem is that expensive oil and gasoline could eventually spread into transportation, food and other prices. Canada’s counter-tariffs could add another source of cost pressure.
So the Bank is being pulled in opposite directions. Weak jobs and trade uncertainty argue for lower rates. Higher energy costs and tariffs argue for higher rates.
That’s why I’d stop assuming another rate cut is automatically coming. The number I’m watching now is inflation excluding gasoline.
⛏️ Canada is starting to think differently about its resources
Something else has been changing quietly throughout this trade fight.
Canada spent decades selling itself to the United States as a reliable supplier of energy and raw materials.
Now Natural Resources Minister Tim Hodgson is increasingly talking about using Canadian electricity and critical minerals for Canada first, while Ottawa is spending billions trying to build more domestic processing and supply chains.
That includes uranium, potash, nickel, copper, graphite and rare earths used in defence, nuclear power, batteries, autos and electronics.
Ottawa has already committed more than $3.6 billion toward critical-mineral projects, while Hodgson’s recent Saskatchewan trip emphasized processing and manufacturing those resources here rather than simply digging them up and shipping them south.
This reminds me of the oil-refining question we recently looked at. Extracting a resource captures one part of its value. Processing it and building something with it captures another.
The harder question is whether Canada can actually build the mines, power, roads and processing facilities quickly enough to make that strategy real.
🚆VIA Rail is another piece of the same strategy
Ottawa is spending $4.7 billion to build and maintain 313 new VIA Rail passenger cars in Canada, supporting nearly 700 jobs in Ontario and Quebec.
For the first time in roughly 40 years, VIA passenger cars will be manufactured domestically. Carney made a point of saying vehicles that had previously been built in the U.S. will now be built in Thunder Bay.
The $4.7 billion isn’t simply the price of 313 train cars. It includes manufacturing, maintenance and related services.
But there is still a fair economic question here: how much more should taxpayers be willing to pay to keep production in Canada? Domestic procurement can support jobs and suppliers, but “made in Canada” isn’t automatically good value at any price.
And that’s really the industrial-policy debate starting to emerge from this trade war.
Not just:
How do we punish American imports?
But:
What should Canada start producing for itself again?
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🤖 Canada wants the AI boom. Who pays for the electricity?
Ottawa also released new Responsible Data Centre Development Principles as Canada prepares for a huge increase in AI infrastructure.
Researchers have identified only four operating AI-specific data centres today, but another 49 have been announced or are under construction.
The federal message is basically: build here, but don’t leave ordinary Canadians paying for the electricity infrastructure. Ottawa says projects should create lasting community benefits, limit water use, be transparent and not shift electricity costs onto ratepayers.
I like the principle. The problem is that these are voluntary expectations, not federal regulations.
Provinces and municipalities control much of the electricity, water and development approval process. So the real test comes when a multibillion-dollar data centre wants access to scarce power and a community has to decide whether the jobs and investment are actually worth what it consumes.
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Quick things happening across Canada and beyond
🇨🇦 Canadians are still backing Carney’s trade stance
A new Nanos survey found 85% combined support for Canada rejecting the proposed U.S. deal despite the economic risks. That doesn’t mean 85% support every counter-tariff, but it does give Carney considerable political room to hold his position.
🇺🇸 Canada’s new counter-tariffs start Monday
At 12:01 a.m. September 8, Canada’s next retaliation begins, covering $27.6 billion of American imports at rates of 15%, 25% and 50%. Since we’ve already broken down the tariff system in detail, the next thing worth watching is how much Canadian businesses absorb versus pass through to customers.
🐑 Wool shows how difficult “buy Canadian” can be
Some Canadian wool gets sent into the U.S. simply to be cleaned, then comes back to Canada. Tariffs have made that arrangement much more expensive, forcing producers to look for domestic alternatives. It’s a tiny industry, but a very good example of how decades of integrated supply chains can’t always be rebuilt with a slogan.
✈️ Canadians are still avoiding the U.S.
Canadians made 10.6% fewer trips to the U.S. in Q1 than a year earlier, while spending fell 13.6%. Overseas travel increased at the same time, suggesting at least part of the decline is Canadians choosing somewhere else rather than simply cancelling vacations.
🚧 Windsor is building a highway overpass with giant foam blocks
This sounds ridiculous until you understand the engineering. Windsor is using lightweight geofoam underneath a new overpass because the region’s soft clay soil can settle under traditional heavy fill. The material is roughly 100 times lighter than soil while still supporting road loads. Sometimes the weirdest headline has the most sensible explanation.
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🇨🇦🇺🇸 One more thing on the U.S.
Carney says Canada is still willing to negotiate.
He believes a mutually beneficial deal still exists, but says Washington needs to change the way it’s approaching the talks. He also called some of the personal attacks from American officials “beneath their office.”
At the same time, the Trump administration keeps publicly emphasizing how dependent Canada is on the American economy.
I made a video about why I think that messaging is worth paying attention to.
One thing before I go…
The thing I keep noticing is that Canada’s response to the trade war is gradually becoming about much more than tariffs.
Critical minerals.
Canadian rail manufacturing.
Data centres.
Pipelines.
Domestic supply chains.
The government is increasingly asking some version of the same question:
What does Canada need to control for itself?
I think that’s the right question.
But there’s also a danger of turning every “Canadian-made” project into a good project simply because it reduces dependence on the U.S.
Economic independence still has a price.
If taxpayers spend $2 to create $1 of long-term value, calling it sovereignty doesn’t suddenly make the math work.
So what I’ll be watching isn’t simply how much Ottawa announces.
It’s whether Canada is actually building industries that can survive without permanent government support once the trade war is over.
That’s the difference between resilience and an expensive slogan.
P.S.
If Canada is going to spend more money building industries at home, which one should come first?
Energy? Critical minerals? Manufacturing? AI infrastructure?
Hit reply and tell me where you’d put the money.
Until Next Time,
Dean