‘If tariffs are long-lasting and broad-based, there won’t be a bounce-back,’ the Bank of Canada Governor said in a speech in Mississauga
Bank of Canada Governor Tiff Macklem warned that a full-blown trade war with the United States would permanently weaken the Canadian economy and cautioned that the central bank has few tools to respond to a structural shift toward protectionism that would both hamper growth and increase inflation.
Since returning to the White House, U.S. President Donald Trump has threatened to impose a 25-per-cent tariff on imports from Canada, with lower levies on energy products, although heA trade war would put the Bank of Canada in a difficult position. Widespread tariffs would likely push Canada’s fragile economy into a recession.
He suggested the aggressive monetary-policy-easing the bank delivered during the COVID-19 pandemic – cutting interest rates to near zero and buying hundreds of billions of dollars worth of government bonds to suppress interest rates – wouldn’t be appropriate this time around. “We can’t let a tariff problem become an inflation problem,” he said.
“Macklem’s comments are consistent with our view that the Bank of Canada would cut rates roughly 50 to 100 basis points more than otherwise if 25-per-cent U.S. tariffs materialize,” Royce Mendes, head of macro strategy at Desjardins, wrote in a note to clients. . In this scenario – which Mr. Macklem emphasized is not a forecast – Canada’s exports would fall by 8.5 per cent, consumer spending would contract by more than 2 per cent by 2027 and business investment in the country would decline by almost 12 per cent by early 2026.
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