Trade tensions with the US are stalling investment in Canada, as businesses wait for stability
Former Bank of Canada governor Stephen Poloz warned that trade tensions with the US are discouraging investment in Canada, adding pressure to an already struggling economy.
In an interview with BNN Bloomberg, he said businesses remain cautious as the risk of US President Donald Trump’s proposed 25 percent import tariffs looms.
Poloz, now a special advisor at Osler, described Canada’s economy as weak and unprepared for the potential economic shock from these tariffs. “We’ve been in a weak spot for pretty well two years now. It’s been masked by high immigration flows, which kind of buries the data,” he said.
He pointed out that household spending per household has declined, while housing and business investment have remained weak.
Drawing comparisons to Trump’s first term, Poloz noted that “a lot of Canadian investment funneled south” as businesses sought better conditions in the US.
He linked the US’s current economic strength to tax incentives introduced under President Joe Biden, which encouraged corporate investment.
“They have an actual investment boom going there, supporting growth, that’s why their deficit’s big, it’s not giving money away, it’s getting companies to invest more, and that’s where their big productivity move is coming from,” Poloz said.
He contrasted this with Canada’s situation, where businesses have put investment plans on hold due to trade uncertainty.
Poloz also discussed the government’s fiscal response following the pandemic, saying financial support focused on stabilizing households rather than promoting corporate investment.
While small businesses received lending support, he believes more should have been done to encourage broader investment.
“That was priority one, but I think maybe we should have held more resources and directed them at companies. We of course did support small companies with a lending program, but that was just to get them through,” he said.
He stressed the importance of creating conditions that drive long-term economic growth, using an analogy to illustrate his point.
“What I’m talking about is incentivizing investment… if you give somebody a fish today because they’re in a tough spot, tomorrow you need to give them another one. But if today you give them a fishing rod, then they’re taken care of.”
Poloz warned that Canada’s current economic position is far weaker than before the pandemic.
“Unemployment was at a 40-year low, and inflation was right on target; a very healthy economy by contrast, and we absorbed or were quite resilient to that shock at that time,” he said.
“I fear that we would be less so, a lot less so, this time around.”
He called for stronger policies that encourage business investment, arguing that a more resilient economy is necessary to withstand potential external shocks, including trade disputes with the US
