Tariff threats are enough to chill Canada’s economy, central bank says

The bank also warned that retaliatory tariffs by Canada and other nations against the U.S. if Donald Trump imposes tariffs could cause a period of inflation.

Canada doesn’t need to be hit by tariffs for the economy to be impacted — the mere threat of a trade war is enough, the Bank of Canada has warned.

The Bank of Canada on Wednesday released the summary of its governing council deliberations, outlining the discussions its members had in the run-up to the last rate cut announced on Jan. 29.

“Even if no tariffs were imposed, a long period of uncertainty under the cloud of tariff threats would almost certainly damage business investment in Canada,” the report said.

It added that a hit to investments would damage growth prospects for Canada’s economy.

“Companies were already re-evaluating their investment plans in the face of trade policy uncertainty. With significant tariffs, the risk of capital flight would increase, exacerbating Canada’s competitiveness challenges and low productivity growth.”

Governing council members also reviewed reports that indicated that the Canadian dollar had already taken a hit from the uncertainty. Tariffs, they said, would cause the loonie to slide further.

Bank of Canada economists were concerned that long-term, tariffs would be devastating for Canada’s export sector.

“Over time, this could lead to business closures and companies exiting the export sector.”