Trump’s tariff threat raises ‘major’ uncertainty for Canadian economy, Bank of Canada warns

President-elect Donald Trump’s pledge to impose a 25 per cent tariff on imports from Canada has introduced a significant source of uncertainty for the Canadian economy, according to Bank of Canada Governor Tiff Macklem.

Speaking at a press conference on Wednesday, Macklem emphasised that the central bank’s decision to cut its policy rate by half a percentage point to 3.25 per cent was partly influenced by this major new uncertainty.

“… the economic outlook is clouded by the possibility of new tariffs on Canadian exports to the United States.” Macklem said in his prepared remarks. “No one knows how this will play out in the months ahead—whether tariffs will be imposed, whether exemptions get agreed, or whether retaliatory measures will be put in place. This is a major new uncertainty.”

The central bank’s next rate decision will be on January 29, 2025.

Late last month, Trump announced his plan to impose a 25 per cent tariff on imports from Canada and Mexico, citing concerns over border security and the inability to control illegal migration and drug flows. Over 20 per cent of Canada’s gross domestic product is tied to trade with the US, with three-quarters of its exports destined for the American market, including crude oil, automotives, and auto parts.

Attribution: Bank of Canada