Former Bank of Canada governor warns Canada ‘outgunned’ in trade war

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Former Canadian governor Stephen Poloz said we were “seriously contested by Americans” in the trade war, believing that Canada still needs the United States.

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“When the dust settles, we will need today’s U.S. partnership,” Poloz, now Osler, special consultant for Hoskin & Harcourt LLP, said in a webinar recorded on Monday. “We need to pay attention for the long term. It’s not Hatfields and McCoys. We have to think long term and do the best help at this stage because they know there will be another hand in the future.”

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U.S. President Donald Trump will announce reciprocal tariffs to all countries on April 2, and it is unclear whether the goods covered by the Canada-US Mexico Agreement (CUSMA) will be exempt from taxes after that date.

Bank of Canada estimates a protracted trade war with the United States will cause Canada’s GDP to fall by 3% over the next two years. Desjardins Group economists predict that Canada’s economy will enter the fastest contraction in the second quarter of this year.

Poloz said that while forecasts for the Canadian economy were “gray”, he did not consider them “existent”. He said he was optimistic that Canada could find a practical solution.

“People forget that there is no trade between countries; it’s happening between people,” he said. “Those people still like each other, still respect each other, still want to do business together.”

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The trade war with the United States will dominate the federal election that began Sunday, with Conservative leader Pierre Poilievre and Liberal leader Mark Carney both pledged to cut taxes for Canadian lowest incomes.

Poloz said the trade war would require a fiscal response, although he doesn’t think it needs the scale seen during the pandemic.

“My hope is that it will be more inclined to promote investment than just household spending than we have invested in other slowdowns,” he said.

Last week, the federal and provincial governments announced their plans to remove internal trade barriers and conduct free trade at home by July 1.

Poloz said the benefits would be huge for the Canadian economy.

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Moving forward, Poloz also made many suggestions to make Canada’s economy more competitive. These include declaring that energy and resource projects are in national interest, tending to technological innovation, creating better tax systems for manufacturing, and using revenue from retaliatory tariffs to fund tax cuts.

“We are at the forefront of a major technological revolution. The world will change in many different ways; more trade will be services, not commodities.” “There are a lot of other things that change in positive ways. All we need to do is to make ourselves able to take advantage of it all, and we can.”

•Email: jgowling@postmedia.com

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