Bank of Canada says trade war will hurt Canada more than the United States
The Bank of Canada’s governing council members think Canada’s economy will be hurt more by a protracted trade war than that of the United States, according to minutes released by the central bank on Wednesday.
“GDP would be lower in both Canada and the United States, but the GDP loss would be significantly larger for Canada because Canada has a more open economy, and its exports are so concentrated with the United States,” the minutes said. “Governing Council members also noted that the adverse impact on the level of GDP would be permanent, and the growth of GDP would be reduced until the Canadian economy adjusts to the tariffs.”
In late January, the Bank of Canada decided to cuts its policy rate by 25 basis points, bringing the rate down to three per cent. The decision was made in part to support economic growth, but it was also due to looming trade uncertainty with the U.S.
“Members agreed that a 25 basis point cut would be helpful to support growth and better balance inflation risks,” the deliberations said. “Members also agreed that the threat of tariffs had increased uncertainty, and this would weigh on business confidence and investment intentions, as well as consumer sentiment.”
The deliberations were from the weeks preceding Feb. 1, when U.S. President Donald Trump followed through on his threat and signed an executive order imposing a 25 per cent tariff on all Canadian goods and a 10 per cent tariff on Canadian energy. In response, Trudeau promised 25 per cent retaliatory tariffs on $155 billion worth of U.S. goods. A 30-day pause on the tariffs was secured on Feb. 3, after Trudeau promised to direct more resources to the Canada-U.S. border.
In its monetary policy report released on Jan. 29, the central bank’s
Read more on financialpost.com
