Governor Tiff Macklem discusses the trade conflict with the United States and how it is has affected the Canadian economy. He explains that restoring open trade is important for jobs, growth and price stability in Canada.
Watch Governor Tiff Macklem speak to the the St. John’s Board of Trade. Read the full speech.
Exports have been disrupted
Before the US trade conflict, the global economy had momentum and Canadian exports were strengthening. But US tariffs have shifted Canadian trade in a couple of key ways.
Tariffs changed the timing of shipments
Before the tariffs took effect, Canadian exporters shipped as much as possible to their US customers. This pushed export volumes sharply higher in the first quarter and temporarily lifted economic growth. But since US tariffs were imposed, this trend has reversed, and exports have dropped.
Tariffs have highlighted the need for trade diversification
With tariffs in place, Canadian businesses are looking for new markets for their products and services. Trade with countries other than the United States is starting to pick up. And US tariffs have renewed a long-standing push to remove interprovincial trade barriers, improve transportation links across Canada and diversify the market for Canadian goods.
The United States will always be our single biggest trading partner, but we can improve our resilience and grow our prosperity by expanding both our internal trade and overseas markets for our products.”
The labour market has weakened
US tariffs have already hurt employment in the sectors most dependent on trade. Canadian businesses that are subject to tariffs knew demand for their products would be lower, so they cut jobs.
As tariffs and uncertainty have eroded exports, the rest of the economy has felt the slowdown. Households and businesses have already become more cautious. If employment weakens further, demand will fall for many goods and services.
If the current tariffs remain in place, more jobs will be lost. Over the longer term, employment will depend on how well Canadian businesses pivot to new markets. It will also depend on whether governments have invested in the infrastructure needed to get goods to those new markets.
Tariffs influence inflation
Tariffs that slow growth and lead to job cuts push inflation down. But tariffs also add to costs, which typically lead to higher prices for consumers. Right now, it’s hard to see the direct impact of tariffs because temporary factors are making inflation bounce around. For example, the removal of the consumer carbon tax knocked 0.6 percentage points off inflation in April, pushing inflation below the 2% target. This temporary tax effect will lower year-over-year inflation for the next 11 months, but then it will disappear.
If we look beyond temporary factors and volatility, inflation appears to be a bit stronger than the Bank expected. Canadian businesses also report higher costs tied to finding new suppliers and markets, which could affect inflation if these costs are passed on to consumers in the form of higher prices. At the same time, more job losses would lead to lower inflation.
The trade situation continues to evolve and there is still a lot of uncertainty. The Bank is assessing how the effects of tariffs are spreading through the economy, while focusing on keeping inflation near the 2% target.
The best way to avoid the job losses and price increases caused by tariffs is to not have tariffs.”
Watch Governor Macklem answer questions from the media following his speech.
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June 5, 2025