What Moved
February 2026 was the most consequential month for Canada-US trade relations in decades, and the developments came in rapid succession. Tariffs on Canadian goods, imposed under the International Emergency Economic Powers Act, remained in force through the first half of the month. On February 12, the US House of Representatives voted 219-211 to repeal the tariffs in a bipartisan rebuke — a rare instance of Congress acting to constrain executive trade authority. Then on February 20, the US Supreme Court ruled that the president cannot use IEEPA to impose tariffs, a landmark constitutional decision that immediately invalidated the existing measures (US Supreme Court, Feb 20, 2026).
The relief was short-lived. On February 24, the administration pivoted to Section 122 of the Trade Act of 1974, imposing temporary 10% tariffs on Canadian goods. Section 122 carries a statutory maximum of 150 days, meaning these measures could remain in place through late July. The legal authority was narrower and the tariff rate lower, but the signal was clear: the trade pressure would continue, just through a different mechanism.
Canadian housing absorbed a difficult month. The national average sale price fell to $652,941, down 3.0% from January and 2.6% year-over-year. The national benchmark price declined 4.9% year-over-year. Sales volume dropped 12.5% compared to February 2025, while new listings rose 7.3%, pushing inventory higher. Severe winter weather in Ontario compounded the trade-driven uncertainty to suppress activity further. Regional divergence was stark: Quebec City posted 14% year-over-year price gains while Ontario fell 6.4%. PEI and British Columbia recorded the most buyer-friendly conditions with over 10 months of supply, while Alberta remained the tightest market at 3.8 months (CREA, Feb 2026).
Recession risk entered the conversation. Economists warned that if tariffs were maintained through their full 150-day window, the Canadian economy could enter recession within six months. The combination of trade disruption, weakening housing, and deteriorating business confidence created a feedback loop that monetary policy alone could not break.
What It Means
The Supreme Court's IEEPA ruling was historic — a constitutional boundary drawn around executive trade power that will shape policy for generations. For Canadian investors, it removed the most aggressive tariff mechanism but did not eliminate the threat. The pivot to Section 122 demonstrated that the administration would use whatever legal authority remained available. The practical implication for Canadian businesses and investors: plan for persistent, moderate trade friction rather than either full normalization or catastrophic escalation.
For private credit investors, February reinforced a developing thesis. As banks tightened lending criteria amid the uncertainty — pulling back from sectors with trade exposure and raising internal risk thresholds — the displacement opportunity for private lenders grew. Well-capitalized private credit funds with disciplined underwriting were positioned to step into the gap left by retreating bank capital. This was the structural advantage of private credit in stressed environments: the ability to price risk individually rather than applying blanket restrictions. Portfolio fundamentals remained stable through February, though watchlist activity in trade-exposed sectors increased.
The housing data demanded attention. A 12.5% year-over-year decline in sales, combined with rising inventory, signalled a market that had moved decisively from the equilibrium of late 2025 into buyer territory in most regions. For private credit portfolios with residential mortgage exposure, the risk was not immediate — loan-to-value ratios set during underwriting provided buffer — but the trend warranted monitoring. A sustained price correction in Ontario, where the decline was most pronounced, could begin to test those buffers if it continued through the spring.
The liquidity picture required careful reading. Rising inventory and falling sales volumes meant longer time-to-exit for development projects and bridge loans. Private lenders with exposure to residential development in soft markets needed to stress-test timelines, not just valuations. The distinction between a temporary weather-driven slowdown and a structural demand shift would become clearer in March and April data.
What We're Watching
Whether the Section 122 tariffs remain at 10% for their full 150-day duration, or whether diplomatic negotiations produce an earlier resolution.
The BoC's March 12 decision — the case for an emergency cut is building, but the Bank may wait for harder economic data before acting.
Spring housing data in March and April that will reveal whether February's weakness was weather-amplified or structural.
Private credit portfolio metrics through Q1, with particular attention to loan extensions, watchlist additions, and borrower covenant compliance in trade-sensitive sectors.
Closing
February 2026 delivered both a constitutional landmark and a sobering reminder that trade uncertainty does not resolve cleanly. The Supreme Court drew a line, Congress asserted itself, and the administration found a new path forward. For Canadian private market investors, the lesson was not to wait for resolution but to operate within ambiguity — maintaining discipline, monitoring exposures, and recognizing that the resilience built through the 2020-2025 cycle was now being tested by a fundamentally different kind of stress.
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