U.S. President Donald Trump’s tariffs would push Canada’s economy into a recession and cause unemployment to surge, BMO’s chief economist said in a research note, likely pushing the Bank of Canada to cut its benchmark interest rate at its next six meetings through October.

On Saturday, Trump announced he would impose a 25 per cent tariff on non-energy imports from Canada, with a 10 per cent duty on Canadian energy, starting Tuesday. By Monday afternoon, Prime Minister Justin Trudeau said the U.S. has agreed to pause tariffs on Canada for at least 30 days while the two countries work together on border-related issues.

BMO chief economist Douglas Porter wrote in a research note that was released after Trump's initial announcement but before the 30-day pause that “Trump’s tariff hammer will come down hard on the economy.” Basing his analysis on the assumption that the tariffs are put in place for one year, he expects a modest recession and a rise in Canada’s unemployment rate, pushing the Bank of Canada to cut rates more than previously expected.

BMO had previously forecast that the central bank would cut the policy rate two more times in this rate cycle, with 25 basis point cuts expected in both April and July, which would bring the Bank’s benchmark rate to 2.5 per cent.

If the proposed tariffs are imposed, BMO would instead expect 25 basis point cuts at each Bank of Canada meeting until October, bringing the benchmark rate to 1.5 per cent.

"The net risk is that we get to the endpoint sooner," Porter wrote.

The Bank of Canada cut its benchmark interest rate by 25 basis points last week, bringing it to three per cent, warning that “a long-lasting and broad-based trade conflict would badly hurt economic activity in Canada.” The central bank modelled the potential impact of the U.S. imposing a blanket 25 per cent tariff on Canadian imports, and found that real GDP would be 2.4 percentage points lower by the end of the first year compared to a non-tariff scenario.

Porter wrote that the Canadian economy would face the risk of a modest recession if tariffs are in place for a year, with a two percentage point reduction to real GDP growth in 2025, slightly below the Bank’s simulation due to the lower tariff on energy imports. Canada’s unemployment rate, which currently sits at an elevated 6.7 per cent, would rise even further to around eight per cent.

RBC chief economist Frances Donald and assistant chief economist Nathan Janzen wrote in a research note on Sunday that “a persistent tariff of this magnitude is recessionary for Canada.”