Trade Uncertainty Acts as Tax on Businesses, Bank of Canada Considers

06 Feb, 2025

Uncertainty surrounding Canada’s trade relationship with the U.S. is creating challenges for businesses and households. Economists warn that the upcoming review of the Canada-U.S.-Mexico Agreement (CUSMA) in 2026 adds to the unpredictability, making long-term planning difficult. While Canada secured a temporary reprieve from U.S. tariffs, concerns remain over future negotiations and potential trade disruptions.

Economists highlight that U.S. President Donald Trump’s statements indicate a push for a rapid deal, with possible tariff threats if Canada resists key demands. The ongoing trade tensions contribute to economic uncertainty, leading to delays in business investments and strategic decisions across various sectors. This situation acts as an indirect tax on businesses, limiting their ability to operate as usual.

Market volatility has increased as a result of trade instability, with fluctuating expectations regarding the Bank of Canada’s monetary policy. Before the temporary tariff relief, speculation about an emergency rate cut had risen. Analysts now suggest that if tariffs are imposed in March, the central bank may cut rates significantly to counteract economic pressures.

The Bank of Canada recently reduced its policy rate by 25 basis points to 3%, acknowledging the risks posed by trade uncertainty. Economists suggest that further cuts are likely, regardless of whether tariffs are implemented. A prolonged trade conflict could lead to deeper rate reductions and slower economic growth.

Governments at all levels are now exploring ways to enhance Canada’s economic resilience. Interprovincial trade barriers are being reviewed, and Prime Minister Justin Trudeau is hosting a Canada-U.S. Economic Summit to address challenges and opportunities. As economic concerns grow, policymakers and businesses are searching for strategies to safeguard Canada’s long-term growth amid ongoing trade uncertainties.

Related News

Interview