Bank of Canada Warns of Economic Risks from U.S. Tariff Uncertainty

Bank of Canada Governor Tiff Macklem warned that U.S. policy shifts and President Donald Trump’s tariff threats are creating economic uncertainty. Speaking at a virtual conference in Mexico City, Macklem noted that the mere threat of new tariffs is already impacting business and household confidence, particularly in Canada and Mexico.

On Monday, Trump temporarily paused a planned 25% tariff on nearly all Canadian and Mexican imports. Had the tariff been implemented, it could have triggered a recession and increased prices in both countries. However, the U.S. government has only suspended the tariffs for a month, leaving long-term uncertainty.

Macklem emphasized that prolonged uncertainty will slow economic activity and complicate monetary policy. The Bank of Canada previously warned that such tariffs make economic projections difficult and could cause severe economic harm. If broad-based tariffs are imposed, long-term prosperity would decline, a situation monetary policy cannot easily fix.

Beyond tariffs, Macklem pointed to other global challenges, including geopolitical risks, rising trade protectionism, economic fragmentation, technological advancements, and climate-related disruptions. These structural changes create additional hurdles for central banks, forcing them to make tougher policy decisions while facing increased scrutiny.

"We will be criticized for being ineffective or not doing enough, and our independence may be challenged," Macklem said. The Bank of Canada has faced criticism for its pandemic-era policies, which some believe failed to curb recession and unemployment. In response, the bank pledged to improve communication and forecasting to better predict future economic shocks.

Amid growing uncertainty, Macklem stressed that central banks must remain evidence-based, independent, and professional, working collaboratively to maintain price stability and economic resilience.