In a significant address to the St John’s Board of Trade on June 18, Bank of Canada Governor Tiff Macklem painted a clear picture of how evolving US trade policy is reverberating through the Canadian economy, affecting both jobs and inflation.
His remarks, published on the Bank for International Settlements (BIS) website, underscored the pervasive uncertainty and tangible consequences for businesses and households across the country.
Canada’s reliance on foreign trade
Macklem began by acknowledging Canada’s reliance on foreign trade, stating: “Canada, a country that depends on foreign trade, was benefiting.” He recalled a period of renewed momentum at the end of 2024, with inflation near the 2% target and strengthening exports. However, this positive trajectory has been disrupted by recent developments in US trade policy.
The Governor directly addressed the escalation of tariffs since the current US administration took office in January. “Since President Trump took office in January, the world has faced a dramatic escalation in tariffs and pervasive uncertainty,” Macklem stated. “In Canada, trade has been disrupted and jobs have been lost. Businesses have re-evaluated their investment plans. Consumers have become more cautious. And Canadians have told us that they expect higher prices for many imported goods.”
Canadian employment
Macklem emphasized the direct impact on Canadian employment, particularly in trade-sensitive sectors. He highlighted that: “Two million Canadian jobs rely on goods exports to the United States,” and warned that If the current tariffs remain in place, more jobs will be lost.
He cited job cuts in Ontario’s auto sector as evidence that the effects of tariffs are moving beyond strictly trade-dependent industries. While other sectors have shown some resilience, Macklem cautioned that “if demand stays soft, at some point more businesses will cut jobs.”
Inflation and pressure exerted by tariffs
On the inflation front, Macklem explained the dual pressure exerted by tariffs. While tariffs can slow growth and cut jobs, potentially dampening inflation, they also increase the cost of imported goods, which can be passed on to consumers.
He stated: “If tariffs are not removed, we expect they will be passed through to higher consumer prices.” Macklem elaborated that “the prospect of a new Canada-US trade deal offers hope that tariffs will be removed. But until we have a deal, inflation will be affected by both US tariffs and Canadian counter-tariffs.”
“The best way to avoid the job losses and price increases caused by tariffs is to not have tariffs.”
Tiff Macklem, Governor, Bank of Canada
A glimmer of hope emerged with the recent announcement that Canada and the United States have agreed to negotiate a new economic and security relationship within 30 days. Macklem welcomed this development, asserting that: “Restoring open trade between our countries is critical to jobs and growth in Canada. It is also important for prices and inflation.”
Market growth
However, Macklem also stressed the need for Canada to build greater resilience against future trade shocks.
He emphasized the importance of trade diversification, stating: “Growing new markets for our exports builds scale and competitiveness.” He further noted that “Eliminating interprovincial trade barriers and investing in better east–west transportation links would grow our internal market. And our ports give Canada the opportunity to expand overseas.”
While acknowledging that “the United States will always be our single biggest trading partner,” Macklem underscored the imperative to “improve our resilience and grow our prosperity by expanding both our internal trade and overseas markets for our products.”
The Bank of Canada, Macklem assured, is closely monitoring the situation. It is assessing how the effects of tariffs are spreading through the economy, while focusing on keeping inflation near the 2% target. His final message on the issue of tariffs was clear: “The best way to avoid the job losses and price increases caused by tariffs is to not have tariffs.”
