Bank of Canada admits Canadians are screwed with 25% Trump tariffs

Bank of Canada Governor Tiff Macklem warns a U.S. trade war could devastate Canadian jobs and growth, stating the bank has little power to mitigate economic fallout.

Canada’s central bank says monetary policy is harmless in the face of a trade war with America. Tariffs will “badly hurt” Canadian jobs, investment and growth, Bank of Canada Governor Tiff Macklem said Wednesday. 

“We produce and earn less than [the U.S.] without tariffs,” he told reporters, admitting the Bank is powerless to help.

His remarks followed another cut to the benchmark interest rate, amid concerns their pandemic performance lacked clear communication, reported Blacklock’s.

Last June, the Bank of Canada lowered its benchmark interest rate following six consecutive holds. Governor Macklem said the announcement would be “welcome news” to Canadians, who went through a difficult 2023.

“We’ve come a long way in the fight against inflation,” he said at the time. However, he forewarned that inflation could impact future rate cuts. 

“If we lower our policy interest rate too quickly, we could jeopardize the progress we’ve made,” continued Macklem, saying "Further progress in bringing down inflation is likely uneven and risks remain.”

Macklem previously admitted that federal overspending during the pandemic worsened inflation, a claim he made in 2022. The bank governor then called for a thorough review of its pandemic policies. 

A reporter fired back on Wednesday, asking if the central bank purposely misled Canadians during the pandemic. “Forward guidance has its uses, but it has to be used very carefully.”

The Bank earlier asked that future forward guidance be tied to the inflation outlook, reported True North. They acknowledged misconceptions about the duration of low rates, and that further clarity would better prepare them for another economic crisis.

The Bank used large-scale asset purchases to stabilize financial markets during the pandemic, later shifting to monetary stimulus through quantitative easing, producing billion-dollar losses for the first time in its history.

“With the benefit of hindsight,” Macklem said, “we should have been clearer about … the conditions under which this would hold.” Those conditions were not communicated “as clearly as they should have been.”

On Wednesday, the Bank cut the benchmark interest rates from 3.25 to 3 percent. The key rate informs the cost of borrowing, an important factor for Canadians paying their mortgages and other loans.

“What would happen to interest rates if there are tariffs?” asked Macklem. “I can’t give you a definitive answer … because there are a lot of things we don’t know.”

Governor Macklem says a trade war will “badly hurt” economic activity in Canada. With U.S. tariffs slated for February 1st, he expects “inflation will be higher” as retail prices increase. 

“There is not much we can do about that.”

“We cannot lean against weaker growth and higher inflation at the same time,” continued the central banker. “Economic activity would be lower. Growth would be negative.”

The Bank in a Monetary Policy Report said tariffs would “lead to a depreciation of the Canadian dollar,” cut corporate profits and raise costs, prompting Canadian exporters to “lower production and lay off workers.”

After President Trump announced 25% tariffs last November 25, the Canadian dollar depreciated, sending companies into a frenzy as some relocated their operations to the U.S. to save on costs. 

“We don’t know what new tariffs will be imposed, when or how long they will last,” said Macklem. “There are many possible scenarios.”

“We don’t know the scope of retaliatory measures or what fiscal support will be provided,” he continued, noting “it will still be difficult to be precise about the economic impacts” even with additional data “because we have little experience with tariffs of the magnitude being proposed.”

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Alex Dhaliwal

Calgary Based Journalist

Alex Dhaliwal is a Political Science graduate from the University of Calgary. He has actively written on relevant Canadian issues with several prominent interviews under his belt.

COMMENTS

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  • Bernhard Jatzeck
    commented 2025-02-01 09:25:50 -0500
    Don’t forget that a certain candidate for the Liberal leadership was also a BOC governor.
  • Bruce Atchison
    commented 2025-01-31 16:51:36 -0500
    Tiffany is a loon if he thinks his government did the right thing during the panic-demic. Printing money ALWAYS creates inflation. The stupid fools plan to crank out more money when the tariffs hit, causing rampant inflation on top of the tariff. Pierre Poilievre must explain basic economics to fence-sitting citizens who never learned it in school.