The uncertainty Canada faced during U.S. President Donald Trump‘s first term “doesn’t come close” to the current uncertainty around his tariffs, Bank of Canada governor Tiff Macklem said Thursday.
Speaking at an event in Calgary, Macklem said that while the Canadian economy entered 2025 on a strong footing after years of COVID-19 disruptions and inflation, the outlook for the year is not rosy.
“The Canadian economy managed a soft landing. Unfortunately, we’re not going to stay on the tarmac for long,” he said.
Macklem said Trump’s first term in office created uncertainty in the relatively stable trading relationship between the U.S. and Canada. However, his second term is causing far more.
“After more than 50 years of high predictability in trade policy, there was a sharp increase in uncertainty during President Trump’s first term in office. But that uncertainty doesn’t come close to what we see now,” he said.
Macklem said depending on the duration of the tariffs, the impact could be “severe,” adding that the uncertainty is already harming business investment in Canada.
He also raised concerns over threats to Canada’s sovereignty.
“Most disturbing of all for Canadians, President Trump has threatened our sovereignty, repeatedly referring to Canada as the 51st state. There can be no question about our sovereignty or our border,” he said.
Macklem said the uncertainty around tariffs makes it difficult for Canadians to plan for the future.
“Unfortunately, the uncertainty we face may last a while. That will make it difficult for Canadian businesses to figure out their best strategy and hard for Canadian families to plan for the future,” he said.
However, Macklem added that the Canadian economy entering 2025 looking strong puts Canada in a good position to meet the challenge.
“Five years after the pandemic hit, we have come through an unprecedented global crisis and restored economic growth and low inflation. Interest rates have come down substantially. Because of that, we are in a better position to confront the risks ahead,” he said.
Macklem said the agriculture sector in the Prairie provinces and the manufacturing sector in Ontario and Quebec will take a big hit from Trump’s tariffs. He said Canada’s energy sector, which sends 94 per cent of its crude oil exports to the U.S., will be among the worst-hit industries.
“Looking ahead, U.S. tariffs could put downward pressure on Canadian energy prices and reduce the profitability of Canadian energy producers — at least until access to other markets can be expanded. The hit to profits combined with the uncertainty means that investment will likely drop, and employment could follow,” he said.
Macklem said Alberta will feel the pinch, along with refineries in midwestern U.S. states.
“I know Albertans have lived through boom-and-bust commodity cycles for generations. But a threat to the Canada-U.S. energy relationship is not something we’ve ever had to contemplate,” he said.
Macklem said consumer confidence in the U.S. and Canada has dropped since Trump’s tariff war and the Bank of Canada’s short-term inflation expectation has risen for both countries as consumers gear up to shell out more for everyday items.