lender of Canada cuts gain rate, highlights uncertainty of Trump’s tariffs

TORONTO — Canada’s central lender lowered its key gain rate by half a percentage point on Wednesday and called President-elect Donald Trump’s threat to impose sweeping recent tariffs on Canada “a major source of recent uncertainty.”

The lender of Canada’s selection marked the fifth consecutive reduction since June and brings the central lender’s key rate down to 3.25%. Forecasters were widely expecting a large rate cut after the November labor force survey showed the unemployment rate rose to 6.8%.

Governor Tiff Macklem said in his prepared statement that the central lender opted for two large rate cuts in a row because expense boost and market advancement don’t require to be restricted anymore. With expense boost back at the 2% target, the central lender is now concentrated on keeping it there.

But the central lender noted a number of risks to the economy including Trump’s 25% tariff threat.

“The possibility the incoming U.S. administration will impose recent tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook,” the lender’s statement said.

Trump has threatened to impose a 25% levy on all products entering the U.S. from Canada and Mexico unless they stem the flow of migrants and drugs.

“We did underline that the threat of recent tariffs on Canadian exports, particularly at the level suggested, that is a major source of recent uncertainty,” Macklem said at a press conference. “But the reality is we don’t recognize if those tariffs are going to be implemented.

“We don’t recognize if exemptions are going to be agreed on some parts, we don’t recognize at what level, we don’t recognize if Canada will receive retaliatory measures.”

He said all those factors are significant, adding it’s probably having some impact already.

“There’s no question that if the tariffs were to moved forward at the levels suggested it would be highly disruptive to the Canadian economy,” Macklem said. “It would also be very disruptive to the U.S. economy. Hopefully that doesn’t happen but we did highlight it as a uncertainty.”

Canadian Prime Minister Justin Trudeau said tariffs would be “absolutely devastating” for the Canadian economy, but it would also cruel real hardship for Americans.

Economists declare companies would have little selection but to pass along the added costs, dramatically raising prices for food, clothing, automobiles, alcohol and other goods.

The Produce Distributors Association, a Washington-based trade throng, has said tariffs will raise prices for fresh fruit and vegetables and hurt U.S. farmers when the countries retaliate.

Trudeau said this week the government is still mulling over “the correct ways” to respond, referencing when Canada imposed duties in 2018 against the U.S. in a tit-for-tat response to recent taxes on Canadian steel and aluminum.

About 60% of U.S. crude oil imports are from Canada, and 85% of U.S. electricity imports as well.

Canada is also the largest foreign supplier of steel, aluminum and uranium to the U.S. and has 34 critical minerals and metals that the Pentagon is eager for and investing for national safety.

Nearly $3.6 billion Canadian (US$2.7 billion) worth of goods and services cross the border each day. Canada is the top export goal for 36 U.S. states.