Macklem warns there will be no 'bounce-back' for the Canadian economy in trade war with U.S.

financialpost.com:

Bank of Canada governor Tiff Macklem warns the Canadian economy will not be able to bounce back from a protracted trade war with the United States, as the impact from the trade disruptions will be structural in nature.

“In the pandemic, we had a steep recession followed by a rapid recovery as the economy reopened,” said Macklem, during a speech in front of the Oakville Chamber of Commerce in Mississauga on Friday. “This time, if tariffs are long-lasting and broad-based, there won’t be a bounce-back.”

During its last interest rate announcement on Jan. 29, the Bank of Canada provided scenarios illustrating the potential impact of U.S. tariffs on the Canadian economy. In its benchmark scenario, the central bank estimated a protracted trade war with the U.S. would lead to a 2.5 per-cent hit to Canada’s GDP after the first year.

Three days later, U.S. President Donald Trump signed an executive order threatening to slap a 25-per-cent tariff on all Canadian goods and a 10-per-cent tariff on Canadian energy. Trump granted the Canadian government a 30-day pause after it promised to beef up security at the Canada-U.S. border.

On Friday, Macklem noted that, based on Trump’s Feb. 1 executive order, investment in the Canadian economy would decline by 12 per cent and Canadian exports would fall by 8.5 per cent after the first year.

“Lower export revenues would reduce household income,” he said. “And retaliatory tariffs would raise the prices of many consumer goods.”

In the same scenario, the central bank estimates consumption would decline by more than two per cent by mid-2027 and Canadian output would fall by nearly three per cent over two years.

Macklem argued the only way to offset trade conflict with the U.S., or what he calls a