“The pervasive uncertainty created by continuously changing U.S. tariff threats has shaken business and consumer confidence,” he said.
“The uncertainty alone is already causing harm.”
Macklem warned that the economic damage could be “severe,” depending on how steep tariffs are and how long they’re kept in place. He said that, if the dispute continues, growth in the second quarter of 2025 would take a hit.
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What led to this rate cut
Avery Shenfeld, chief economist with CIBC Capital Markets, said in a note to clients on Wednesday that evidence Canada’s economy was heating up heading into 2025 likely would’ve been enough for the central bank to take a “wait-and-see approach” on further cuts—but then came the trade war.
U.S. President Donald Trump delivered on weeks of tariff threats against Canada on March 4, though those import duties have already shifted with a series of adjustments, delays and reversals.
Wednesday marks the next phase of Trump’s tariff agenda; 25% tariffs on imports of Canadian steel and aluminum entering the U.S. took effect just after midnight. Canada announced it would hit back with retaliatory tariffs the same morning.
The Bank of Canada’s latest interest rate announcement came alongside a supplemental survey of consumers and businesses specifically reacting to the spectre of tariffs from late January through February.
How are Canadians taking it all in
That data suggested that Canadians are planning to spend less as they worry about losing their jobs in the trade dispute, particularly in sectors like manufacturing that are vulnerable to tariffs.
Nearly half of businesses in the survey also suggested they’ll be ready to quickly pass on the higher costs tied to tariffs onto consumers, especially if they’re transparent with consumers about why prices are rising.