Governor of the Bank of Canada Tiff Macklem delivers a speech at a Calgary Economic Development event in Calgary, Alta. on March 20, 2025. (Credit: THE CANADIAN PRESS/Jeff McIntosh)
Canada must make urgent structural reforms to ensure its long-term economic prosperity in the wake of the U.S. trade war, the full impact of which has yet to hit the world’s economy, Bank of Canada governor Tiff Macklem said Tuesday.
“The global economic fallout from the U.S. trade war has so far been milder than first predicted — both because the U.S. tariffs are not as high as initially feared and because retaliatory tariffs were limited,” Macklem said during a speech to the Greater Saskatoon Chamber of Commerce. “But the full impact has yet to be seen.”
Macklem said Canada’s economic growth trajectory has been permanently lowered as the result of U.S. trade action and can only be reversed through strong policy action to increase investment and productivity.
“Canadian leaders — business, political and economic leaders — need to chart a new course,” he said. “We should have been making these changes 15 years ago. But the best time is now.”
While monetary policy can support the economy in its adjustment to the new U.S. trade reality, Macklem said it cannot reverse the damage from tariffs. Last week, the Bank of Canada lowered its policy rate to 2.5 per cent, the first trim since March amid signs of a weakening economy.
Those signs of weakness include a contraction in Canada’s gross domestic product during the second quarter, as exports plummeted almost 27 per cent, and a jobless rate of 7.1 per cent in August.
Some measures Macklem suggested in helping boost Canada’s economy include the removal of interprovincial barriers, expanding east-west transportation links, diversifying export markets and removing barriers to investment by shortening regulatory approvals and reducing regulatory uncertainty.
“We need to learn from the past: the recession in 2009 highlighted how vulnerable we are to a drop in U.S. demand, and everyone talked about diversification then, too,” said Macklem. “But not much happened. This time we need to follow through.”
Macklem noted that the U.S. no longer dominates global trade compared to 25 years ago, with China and the European Union joining the U.S. as major trade hubs. Growth in global trade as a whole has also slowed over the last 15 years.
Still, Macklem said the U.S. continues to dominate global financial flows, with the biggest equity and debt markets in the world.
“For many global investors, the question now is whether U.S. dominance in global financial flows will ebb as the United States pulls back from trade and runs large fiscal deficits,” he said.