The Bank of Canada published remarks by Governor Tiff Macklem assessing how shifting and potentially broad US tariffs are already weighing on confidence and could generate a sharp hit to exports and investment while putting upward pressure on prices. The speech frames tariffs as a shock monetary policy cannot offset, but stresses that the Bank’s priority is to keep inflation anchored at the 2% target by preventing one-time tariff-related price increases from becoming persistent, generalized inflation. Sectorally and regionally, the Bank highlighted Alberta’s exposure to a potential 10% tariff on energy exports, noting that roughly 94% of Canadian crude oil exports go to the United States and that diversification capacity is growing but not designed to replace US demand. In the Prairies, fertilizers including potash have been temporarily exempted and planned tariffs on non-compliant exports lowered to 10%, but uncertainty remains ahead of spring seeding; China also announced a 100% tariff on Canadian canola oil and meal, with canola exports valued at close to USD 5 billion. Ontario and Quebec face disruption from 25% tariffs on steel and aluminum, with 2024 trade flows showing the United States imported about one-quarter of its steel and 40% of its aluminum from Canada, while Canada imported one-quarter of its steel and one-fifth of its aluminum from the United States. The Bank’s recent surveys point to households becoming more worried about jobs and intending to reduce spending, businesses delaying investment and hiring, and about half of firms planning to raise prices to pass through higher costs; near-term inflation expectations have risen, and equity markets have fallen sharply in recent weeks with US indices down about 10% from recent peaks. On policy implementation under “pervasive uncertainty,” the Bank set out three operational priorities: track tariff- and uncertainty-related cost increases through to consumer prices, strengthen multi-sector and global-link models to analyze tariff scenarios, and expand outreach and nimble surveys to gather timely intelligence. The Governing Council’s decision-making approach would place greater weight on risks when conviction around a single baseline outlook is low, potentially becoming less forward-looking than usual while remaining ready to act quickly as outcomes become clearer.
Bank of Canada 2025-03-20
Bank of Canada outlines how US tariff uncertainty could disrupt regional sectors and shape monetary policy
The Bank of Canada, via Governor Tiff Macklem, emphasized the impact of US tariffs on Canadian exports, investment, and inflation, reaffirming its 2% inflation target. It noted Alberta's vulnerability to energy tariffs and broader regional effects on steel, aluminum, and agriculture. The Bank plans to monitor tariff impacts, enhance models, and expand intelligence gathering, adopting a flexible approach to emerging risks.