Canada lowers interest rates and imposes tariffs on US goods amid ongoing trade disputes and economic risks
The Bank of Canada reduced its key interest rate by 25 basis points to 2.75 percent on Wednesday, marking the seventh consecutive rate cut since June of last year.
BNN Bloomberg reports This decision aims to counteract the economic challenges arising from escalating trade tensions with the United States.
Warren Lovely, chief rates strategist at National Bank of Canada, noted that the rate cut was anticipated given the economic threats posed by US President Donald Trump's tariff policies.
According to Reuters, he emphasized that while monetary policy is not a precise tool for addressing trade disputes, maintaining a 3 percent interest rate amid such tensions could lead to economic stagnation.
Ed Devlin, founder of Devlin Capital and senior fellow at the C.D. Howe Institute, suggested that a federal stimulus package could be more effective than previous relief efforts during the COVID-19 pandemic.
He anticipates coordination between fiscal and monetary authorities to navigate the unprecedented challenges posed by the current trade environment.
In response to the US imposing a 25 percent tariff on Canadian steel and aluminum imports, Canada announced reciprocal tariffs on US$21bn worth of US goods, including steel, aluminum, and various other products.
Finance Minister Dominic LeBlanc stated that these measures are intended to protect Canada's economic interests, according to the New York Post.
The European Union has also declared similar tariffs on US goods, set to take effect in April, further intensifying global trade tensions.
The ongoing trade disputes have begun to erode consumer and business confidence in Canada.
As per Financial Times, Lovely observed that while earlier rate cuts had stimulated economic activity, the current trade uncertainties have led to a decline in both consumer and business sentiment, particularly affecting the manufacturing and consumer spending sectors.
Devlin predicts that the Bank of Canada may continue to lower its key interest rate to 2 percent, a sentiment echoed by economists at major Canadian banks.
He emphasizes the importance of considering tariffs from a risk management perspective, given the potential long-term nature of the trade tensions.
Lovely acknowledges the extraordinary uncertainty faced by policymakers and underscores the need for strategic, long-term economic planning to build a more resilient and self-sufficient Canadian economy.
The escalating trade war has raised concerns about a potential global economic slowdown, according to The Guardian.
Financial markets have experienced increased volatility, and there are fears that prolonged trade disputes could disrupt global supply chains and dampen economic growth worldwide.
