On Wednesday, the Bank of Canada lowered its key lending rate by a quarter point to 2.75 per cent – its seventh straight cut – in response to expected fallout from tariffs imposed by United States President Donald Trump on Canadian imports. These include:
- A 25 per cent tariff on aluminum and steel in effect as of March 12, with Canada being the United States’ top supplier for both metals. The Canadian government imposed almost C$30 billion in retaliatory tariffs on U.S. imports in response.
- A 25 per cent tariffs on all other Canadian imports (10 per cent for energy), currently delayed until April, at which point the Canadian government is prepared to expand retaliatory tariffs to C$155 billion.
The rate cut comes at a time of conflicting economic forces, with core inflation rising from 1.5 per cent in August 2024 to 2.1 per cent in January 2025, and tariffs likely to result in pockets of short-term inflation, though unemployment stemming from dwindling business sentiment would likely bring recession into the picture.
According to Bloomberg, Bank of Canada governor Tiff Macklem stated in a February speech that he believes a drawn out trade war would lower Canada’s output by nearly 3 per cent over two years.
The central bank’s March rate announcement echoes this sentiment, stating that, “while economic growth has come in stronger than expected, the pervasive uncertainty created by continuously changing U.S. tariff threats is restraining consumers’ spending intentions and businesses’ plans to hire and invest… Monetary policy cannot offset the impacts of a trade war.”
The Bank of Canada’s precarious position should be music to the ears of stock investors, because price-value dislocations are likely to present themselves, making companies with sound balance sheets and sufficient brand power to weather a prolonged dispute prime candidates for due diligence.
Join the discussion: Find out what everybody’s saying about Trump’s tariffs and inflation in Canada on Stockhouse’s stock forums and message boards.
The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.
(Top image, generated by AI: Adobe Stock)
