Tiff Macklem told the Halifax Partnership on Monday that new American tariffs on nearly $28 billion of Canadian goods could roughly halve Canada’s fourth-quarter growth, to below one percent, if they remain in place.
The arithmetic behind that sentence is worth laying out. Canada’s economy grew at an annualised 3.3 percent in the second quarter as households and businesses adjusted after nearly eighteen months of tariffs. In July, before the latest measures, the Bank had forecast third-quarter growth of 1.5 percent, and economists think it will land roughly there. The new number applies to the quarter after that, and only if nothing changes.
Macklem’s framing of the mechanism was about behaviour rather than trade flows. The latest escalation, he said, could once again cause businesses to delay investment and hiring decisions. The damage is not primarily the duty. It is the pause.
The Bank is caught between two forces pulling opposite ways. Slower growth drags inflation down. The Middle East conflict pushes it up. Canadian inflation has hovered around three percent for four months against a two percent target, and Macklem expects it to edge up if oil stays near $100. He added a striking detail: fuel prices have risen more than would normally be expected, reflecting damage to global refining capacity, with recent petrol prices consistent with an oil price almost $40 higher than where it actually is.
His stated position on rates is a study in refusing to be rushed. We don’t want to raise our policy rate and restrain growth if inflationary pressures are contained. Nor do we want to be too slow to respond if they are becoming more persistent. So far, no evidence that higher oil prices are spreading into other goods and services.
But the most useful thing he said was about the businesses themselves, and it is genuinely good news that got buried under the forecast.
There is growing evidence, he said, that many Canadian firms have adapted to the Section 232 levies and retaliation since the trade war began in 2025. The Bank’s own Business Outlook Survey shows companies have adjusted supply chains and sourcing to reduce tariff exposure, while exporters have deepened relationships with existing overseas customers to diversify. The economy entered the summer stronger, growth had resumed, investment was picking up, and companies were beginning to look beyond the headwinds to opportunity.
This isn’t going away any time soon, he said, but people are getting on with it. People are figuring out how to move forward.
That is what adaptation actually looks like in practice and it is almost never dramatic. Nobody announces it. A purchasing manager quietly qualifies a second supplier in a different country. A sales director spends more time on the customers who were always there. Eighteen months later the business is structurally different and nobody can point to the day it changed.
The Bank expects labour force growth close to zero over the next few years.
Below one percent, if they stay. Everything in that forecast is in the second half of the sentence.
Source: Reuters, “Bank of Canada says new US tariffs could slash fourth quarter growth”
