Bank of Canada Governor Tiff Macklem said Canada was too slow to reduce its economic dependence on the United States, and should have used the aftermath of the 2009 recession as an opportunity to diversify trade.
“The recession of 2009 highlighted just how vulnerable we are to a drop in U.S. demand. And back then, everybody was talking about diversifying away from the United States. But the reality is, not much happened. This time, we need to follow through,” Macklem said in Saskatchewan on Sept. 23.
During his speech to business leaders in the province, Macklem said U.S. tariffs have put Canada’s economy on “permanently lower paths.” He said when combined with “unsustainable” U.S. fiscal deficits, the world could see increased financial instability.
The United States has placed a series of tariffs on Canada, including 50 percent tariffs on steel, aluminum, and copper, 25 percent tariffs on vehicles and auto parts, and 10 percent tariffs on oil and potash. The United States has also put a general 35 percent tariff on Canadian goods not covered under the United States-Mexico-Canada Agreement, and U.S. President Donald Trump has said he plans to implement additional tariffs on pharmaceuticals and semiconductors.
On Sept. 17, the Bank of Canada lowered its key interest rate for the first time since March from 2.75 to 2.5 percent. Macklem told the audience that the Bank is supporting Canada’s economy “through this period of adjustment while maintaining price stability.”
“We came to the conclusion last week that the risks had shifted. The economy had weakened further, the upward pressures on inflation were looking more contained. It made sense to drop the interest rate 25 basis points,” he said.
Macklem said policymakers and business leaders must examine the structural weaknesses of Canada’s economy, while focusing on increasing productivity and investment. The governor said there is also “momentum” around reducing interprovincial trade barriers, which can be done “quickly at little fiscal cost.”
Macklem also called for the removal of unintended barriers to investment in Canada by shortening regulatory approvals, and the building of “better east-west” transportation links to get products within Canada and to overseas markets. Macklem noted that Canada has trade agreements with 50 countries besides the United States, but “businesses and governments could do more to leverage these agreements.”
“Canadian leaders, business leaders, political leaders, economic leaders need to chart a new course. We should have been making changes 15 years ago. But the next best time is now,” he said.
