Bank of Canada Governor Tiff Macklem says tariffs proposed by President Donald Trump would drive the Canadian economy into the worst recession in three decades.
Recovery from the steepest decline since 1992 would take at least two years.
“In the tariff scenario the level of Canadian output falls almost 3% over two years,” said Macklem, per Blacklock’s Reporter.
“That implies tariffs would all but wipe out growth in the economy for those two years.”
Speaking Friday to the Mississauga, ON, Board of Trade, Macklem noted Canada last experienced broad-based tariffs in the 1930s.
“Increased trade friction with the United States is a new reality,” he said.
“The shock would be felt across Canada.”
“Lower export revenues would reduce household incomes and retaliatory tariffs would raise the prices of many consumer goods. As a result consumer spending on everything from cars to entertainment and housing would slow.”
Trump has threatened to enact 25% tariffs on Canadian exports in March. The impact would be much worse than the COVID-19 recession, said Macklem.
The governor predicted an 8.5% decline in Canadian exports and 12% drop in business investment.
“Canadian exporters respond by cutting production and laying off workers,” said Macklem.
“It would be a very different shock than the COVID-19 shock,” said Macklem.
“In the pandemic we had a steep recession followed by a rapid recovery as the economy reopened. This time, if tariffs are long-lasting and broad-based, there won’t be a bounce-back.”
“We may eventually regain our current rate of growth but the level of output would be permanently lower. It’s more than a shock. It’s a structural change.”
Macklem’s tariff forecast was the most detailed to date by a federal authority. The Department of Finance in a submission December 18 to the Commons Public Accounts Committee said it was “trying to figure out as we go” how many jobs would be lost under a 25% Trump tariff.
“We are trying to figure out as we go,” testified Chris Forbes, deputy finance minister.
“We have done some work in this area.”
Canadian exports to the US total more than $590 billion annually, about 77% of Canada’s global exports. Conservative MP Michelle Rempel Garner questioned federal preparedness.
“Have you forecasted how many jobs would be lost?” asked Rempel Garner.
“We don’t have final numbers I could share,” replied Forbes.
We are working both with businesses and provinces in our own models to determine impact.”
“I think it’s pretty clear we don’t have an analysis done on that,” said Rempel Garner.
“That’s wild. I really hope you guys get on that for the sake of this country.”
