Introduction to Canada’s Economic Dilemma
The head of the Bank of Canada, Governor Tiff Macklem, recently expressed his concerns about Canada’s economic dependence on the United States. He believes that the country waited too long to reduce its reliance on the US and is now paying the price. Macklem was speaking to Saskatchewan business leaders in Saskatoon, where he discussed the impact of global trade disruption on the Canadian economy.
The Impact of US Tariffs
Macklem warned that US President Donald Trump’s tariffs have hit trade-sensitive industries in Canada, resulting in a permanently lower trajectory for economic growth. The tariffs have affected various sectors, including steel, aluminum, autos, and softwood lumber. Additionally, China’s tariffs on Canadian canola have had a significant impact on the Saskatchewan economy.
The Need for Diversification
To break free from its reliance on the US economy, Macklem argues that Canada needs to develop new global markets for its products. He also emphasizes the importance of knocking down internal barriers that hamper productivity. Macklem drew a comparison to the 2008-09 global financial crisis, where Canada’s economy was also heavily impacted by the US collapse. However, he noted that Canadian businesses lost their sense of urgency to diversify after the recession faded away and US demand returned.
The Current Economic Situation
The Bank of Canada recently lowered its benchmark interest rate to 2.5% due to signs of weakness in the economy. Real gross domestic product fell in the second quarter of 2025, and Canada’s labor market is showing cracks, particularly in industries affected by tariffs. Macklem noted that while exemptions under the Canada-US-Mexico agreement have shielded most Canadian goods from US tariffs, the full fallout is yet to be seen.
A Call to Action
Macklem is urging Canadian leaders to take action to restructure parts of the economy. He believes that better east-west transportation corridors, improvements to port infrastructure, and the end of interprovincial trade barriers are necessary to help get Canadian goods to overseas markets. Additionally, he is pushing for regulatory frameworks to be harmonized across provinces and approval times to be shortened to boost Canadian productivity.
The Importance of Central Bank Independence
Macklem also weighed in on Trump’s efforts to influence the US Federal Reserve, the Bank of Canada’s counterpart. He expressed concern that Trump’s attempts to influence the Fed are raising questions about the continued independence of US monetary policy. Macklem emphasized that central banks with operational independence do a better job of delivering price stability for their citizens.
Conclusion
In conclusion, Canada’s economic dependence on the US has left the country vulnerable to trade disruptions. Macklem’s call to action emphasizes the need for diversification, improved infrastructure, and reduced internal barriers to boost productivity. By taking these steps, Canada can reduce its reliance on the US market and make better use of its existing free-trade agreements. As Macklem said, "Canadian leaders – business, political, and economic leaders – need to chart a new course. We should have been making these changes 15 years ago. But the next best time is now."
