Canada’s economy may not be able to absorb tariff shock: Ex-BoC governor
Former Bank of Canada governor Stephen Poloz says ongoing trade tensions with the U.S. have made businesses wary to invest in Canada, putting more strain on an already-struggling economy as the threat of devasting tariffs looms.
Poloz, now a special advisor at Osler, told BNN Bloomberg in an exclusive interview on Wednesday that Canada’s economy is weak, and not in a position to handle the shock it would experience if U.S. President Donald Trump’s 25 per cent import tariffs are implemented.
“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.
“So, with household spending per household shrinking for the last two years, and we still have quite a lot of people to renew their mortgages… investment’s been really low for a long time, housing’s been weak, everything’s been weak.”
Poloz said the current economic backdrop is reminiscent of Trump’s first term in office, when “a lot of Canadian investment funneled south” in search of more favourable business conditions.
He said a big reason why the U.S. economy is faring better than Canada’s now is due to tax incentives implemented by the Joe Biden administration that encouraged business investment in the country.
“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,” said Poloz.
“So, that’s a very positive place to be, whereas in contrast, we’re just kind of waiting for (things) to happen, and now with that uncertainty around trade… companies put investment plans on the shelf.”
‘Give them a fishing rod’
Poloz said that as Canada exited the pandemic period, fiscal resources were mainly geared toward the “safety net” in order to bolster Canadian households at a time when they were fragile and needed support.
“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.
“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 argued that policymakers should be placing a big emphasis on encouraging investment in Canada to create a stronger and more resilient economy that can better withstand external shocks like the trade war it’s now staring down.
He said that prior to the pandemic, Canada was luckily in a relatively healthy place economically, but that isn’t the case now.
“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.”
This article was first reported by BNN Bloomberg
