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Investing.com -- The recent escalation in trade tensions between Canada and the United States is weighing heavily on Canadian exports, labor markets and inflation expectations, Bank of Canada Governor Tiff Macklem said in a speech Wednesday. “Since President Trump took office in January, the world has faced a dramatic escalation in tariffs and pervasive uncertainty,” Macklem told the St. John’s Board of Trade.
Trade disruptions tied to shifting U.S. policy have already prompted sharp declines in Canadian goods shipments, reduced business investment and led to job losses in key sectors, he said. The effects of retaliatory tariffs and uncertainty are trickling through the economy, adding cost pressures amid an already fragile post-pandemic recovery.
Canadian exports had shown signs of renewed strength by late 2024, supported by rate cuts and global recovery momentum. However, goods exports to the U.S. fell more than 15% in April, with motor vehicle shipments down nearly 25% and aluminum products falling by a similar magnitude.
Macklem said businesses accelerated exports early in 2025 to front-run tariffs, creating an artificial surge that is now unwinding. “What happens to the labour market next will depend critically on what happens with the Canada-US trade relationship,” he said, warning that delays in restoring open trade could prolong labor market weakness.
Two million Canadian jobs rely on goods exports to the United States, and job cuts in Ontario’s auto sector signal that tariff effects are moving beyond trade-sensitive industries. Macklem noted that employment growth in non-trade sectors remains resilient for now, but “if demand stays soft, at some point more businesses will cut jobs.”
Inflation dynamics are growing more complex as tariffs raise input costs while a slowdown in activity restrains broader price pressures. Excluding the one-time impact of the consumer carbon tax repeal, inflation rose to 2.3% in April, with core measures trending higher, an outcome Macklem warned may reflect early cost pass-through.
The Bank of Canada left interest rates unchanged at 2.75% in June, citing continued uncertainty and firming inflation. Macklem emphasized that monetary policy remains data-dependent, cautioning that “we can’t let a tariff problem become an inflation problem.”