While Bank of Canada Governor Tiff Macklem insists there’s a limit to a monetary policy response to a tariff war, he has a clear view of the damage it could have on the Canadian economy.
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All in, a US-Canada tariff war would plunge Canadian output by nearly 3% over two years and “wipe out growth” during that period, Macklem said. While the economy may expand again after the initial shock, the path for long-term growth would be 2.5% lower than a scenario where there were no tariffs. Lower export revenues would reduce household income, and retaliatory tariffs would temporarily raise consumer prices above the 2% target, both of which would deter consumer spending. The bank expects consumption to decline by more than 2% by mid-2027.
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