Bank of Canada Governor Tiff Macklem warned Wednesday that U.S. trade policy is already dragging down Canadian exports and jobs and could soon reignite inflationary pressures if tariffs remain in place.
Speaking to the St. John’s Board of Trade in Newfoundland and Labrador, Macklem outlined how the post-pandemic economic recovery has been upended by a wave of U.S. protectionism, triggering sharp reversals in exports and growing layoffs in trade-sensitive sectors.
“Since President Trump took office in January, the world has faced a dramatic escalation in tariffs and pervasive uncertainty,” Macklem said. “In Canada, trade has been disrupted and jobs have been lost.”
The governor said GDP growth received a temporary boost earlier this year as firms rushed shipments and stockpiled goods ahead of tariff implementation. But that momentum quickly faded. Exports to the U.S. plunged more than 15% in April, led by a 25% drop in motor vehicle shipments. Manufacturing job losses are mounting, particularly in Ontario’s auto sector, where employment is down by 55,000 since January.
Downward pressure on growth, upward pressure on prices
Macklem emphasized that tariffs affect inflation in both directions: they slow growth and cut jobs, which can dampen inflation. But they also increase import costs, which may eventually be passed on to consumers.
“The best way to avoid the job losses and price increases caused by tariffs is to not have tariffs,” he said bluntly.
The Bank of Canada is still assessing how much of the recent price strength in core inflation is tariff-related. While headline inflation dropped to 1.7% in April, due in part to the elimination of the federal carbon tax, underlying measures have ticked higher. That’s partly due to goods inflation and some early signs of cost pass-through from disrupted trade.
“The Bank will be watching measures of underlying inflation closely to gauge how inflationary pressures are evolving,” Macklem said, adding that while it’s too soon to quantify the full impact, firms are already reporting higher input costs from finding new suppliers and markets.
More cuts possible if inflation allows
The Bank’s current policy rate sits at 2.75% following seven cuts since mid-2024. It held steady earlier this month, citing economic softness and elevated uncertainty, but also a modest uptick in inflation measures.
“My colleagues on Governing Council and I agreed there could be a need for a further reduction in the policy interest rate if the effects of U.S. tariffs and uncertainty continued to spread through the economy and cost pressures on inflation were contained.,” Macklem said.
But if inflation expectations rise or cost pass-through accelerates, rate cuts could become more difficult to justify, he added.
Call for trade diversification
Macklem also pointed to Newfoundland and Labrador as a model for trade diversification. While roughly three-quarters of Canada’s exports typically go to the U.S., only about a third of the province’s exports are U.S.-bound today—down sharply from two decades ago.
“Newfoundland and Labrador’s success in diversifying its markets and products shows us the way,” he said, urging the rest of Canada to invest in both internal trade links and overseas markets to reduce dependence on a single trading partner.
He also reiterated the importance of reaching a new trade deal with the United States, after both countries recently agreed to begin negotiations within 30 days.
“Restoring open trade between our countries is critical to jobs and growth in Canada,” he said.
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Last modified: June 19, 2025