Canada’s economy is showing new signs of strain, with the national unemployment rate climbing to 7.1% in August, marking the highest level outside pandemic years since May 2016.

According to official labor market data, the country shed 65,500 jobs during the month, with the heaviest losses recorded in transportation, manufacturing, and professional services. The employment rate slid to 60.5%, while the labor force participation rate fell to 65.1%, signaling a broad cooling of hiring momentum across multiple sectors.

Tariffs Taking a Toll

Economists and industry leaders are pointing to U.S. tariffs on Canadian steel, aluminum, and automobiles as a key driver of declining business confidence. With cross-border trade forming a backbone of Canada’s industrial economy, the added costs and uncertainty have slowed investment and led companies to delay or freeze hiring plans.

“Canada’s manufacturing sector is being squeezed from both sides—higher costs from tariffs and lower confidence from global economic uncertainty,” said one senior market analyst. “This combination is forcing businesses to retrench.”

Central Bank Under Pressure

The data has fueled speculation that the Bank of Canada could be forced to cut interest rates earlier than expected in a bid to cushion the downturn. While inflation pressures have moderated in recent months, policymakers now face the challenge of balancing price stability with a deteriorating labor market.

Investors are closely watching the Bank’s next policy meeting, with many predicting a rate cut before the end of the year.

Broader Economic Risks

The rise in unemployment not only signals strain within Canada’s labor market but also highlights the ripple effects of global trade tensions. With the U.S. and Canada locked in disputes over key industries, and a slowing global economy adding further headwinds, Canada’s path to recovery remains fragile.

If conditions worsen, sectors beyond manufacturing—such as real estate, retail, and financial services—could also feel the squeeze.

For now, the rising jobless rate serves as a stark reminder of the vulnerability of Canada’s economy to external shocks, especially in an era of heightened trade protectionism.