Ottawa imposes $29.8 billion in retaliatory tariffs as businesses brace for uncertainty amid US trade policy
The Bank of Canada lowered its key policy rate by 25 basis points to 2.75 percent on Wednesday, citing risks to economic stability due to the ongoing trade dispute with the US.
According to BNN Bloomberg, trade tensions could lead to slower growth and rising prices in Canada, forcing the central bank to adjust its monetary policy.
Ottawa implemented reciprocal dollar-for-dollar tariffs on US steel and aluminum after President Donald Trump’s 25 percent tariffs on Canadian imports took effect.
The Bank of Canada acknowledged the economic strain caused by these measures, stating that businesses and households are struggling with “unpredictable” conditions.
Changes in the scope and timing of tariffs are making it difficult for companies to set prices, plan investments, or make hiring decisions. Households, facing job security concerns, are responding by cutting spending.
Tiff Macklem, Governor of the Bank of Canada, warned that the stability seen in recent months is now at risk. The central bank’s move to lower rates reflects its effort to mitigate the impact of tariffs on economic growth.
Tiffany Wilding, a managing director and North American economist at PIMCO, noted that growing uncertainty is affecting economic sentiment in both the US and Canada.
“We’re getting increasing evidence within the surveys that all of this tariff volatility is increasing uncertainty and it’s reducing sentiment,” she said in an interview with BNN Bloomberg.
She explained that businesses are delaying hiring and investment decisions because the cost of waiting is low.
“If this inflation number was higher, you’d have some of these concerns weighing much more heavily, like the Fed would not be in a position to respond if the economy continues to weaken.”
Wilding also pointed out that the trade dispute is creating a long-term economic shift.
“We’re basically coming to a system with lower potential growth and a higher price level as a result of all of this,” she said.
Wilding suggested that outside of trade-related risks, a 2.5 percent policy rate would be a reasonable long-term target. However, she cautioned that if tariffs become more damaging, the Bank of Canada may have to cut rates further.
Philip Petursson, chief investment strategist at IG Wealth Management, described the Bank of Canada’s rate cut as a “policy adjustment of a different kind.”
In a statement to BNN Bloomberg, he said, “This was not a cut because of moderating inflation. Nor was it a cut to support a faltering economy.”
Instead, he attributed the decision directly to Trump’s tariffs. “While a reduction in the overnight rate won’t solve the challenges brought about by tariffs, the Bank sees it as its mandate to do what it can to offset the economic impact,” Petursson said.
He also noted that the path of interest rates will depend on how long the tariffs remain in place. “The longer the tariffs remain, the greater the potential damage to the Canadian economy, the lower the overnight rate is likely to go.”
Bipan Raj, head of ETF and structured solutions strategy at BMO Global Asset Management, expressed concern over Canada’s willingness to absorb economic damage due to the trade war.
“This is a long-standing trade relationship between the two countries that has been integral to the fundamental structure of each economy,” he said.
Raj also pointed to “imbalances” in the Canadian economy, including high household debt and mortgages that are set to be refinanced at higher rates.
“If we look at direct trade with the United States, 10 percent of the labour force is subject to that, and then that expands even more once we consider indirect trade with the United States,” he said.
Raj warned that unemployment could rise, increasing financial pressure on households.
“Unfortunately, we could be in a scenario where the unemployment rate does tick up,” he said, adding that this could highlight existing imbalances, such as high household debt, as more households focus on deleveraging at the expense of discretionary spending.
As trade tensions continue, Canada faces economic uncertainty, with potential consequences for growth, inflation, and employment.
The Bank of Canada’s rate cut reflects concerns that tariffs could have lasting economic effects. Economists suggest that further rate reductions may be necessary if trade disruptions persist.
Meanwhile, businesses and households are bracing for continued volatility as the trade dispute unfolds.
