MNI: BOC Sees Exporters At Risk Of Closing In Long Trade War
MNI (OTTAWA) - Bank of Canada officials see exporters at risk of going out of business in any long U.S. trade war even with some cushion from a weaker currency, according to deliberations published Wednesday from the Jan. 29 decision to lower interest rates a sixth time.
Governor Tiff Macklem and deputies held lengthy discussions about potential losses of investment and consumer confidence if there is prolonged trade uncertainty, agreeing they can only do so much to shield against such a blow. Trump's early tariff threats influenced the decision to lower rates and the future path of monetary policy must weigh signs of domestic momentum against a trade war that would slash growth and boost prices.
"Members were concerned that U.S. tariffs on Canadian exports would add significant pressures on Canadian exporters. Over time, this could lead to business closures and companies exiting the export sector," according to the Summary of Deliberations. (See: MNI INTERVIEW: Trump Canada Threats Amount To A 10% Tariff)
"Even if no tariffs were imposed, a long period of uncertainty under the cloud of tariff threats would almost certainly damage business investment in Canada," the summary said. "Companies were already re-evaluating their investment plans in the face of trade policy uncertainty. With significant tariffs, the risk of capital flight would increase."
CAN'T LEAN BOTH WAYS
Further weakness in Canada's dollar if tariffs are imposed depend on how much investors had anticipated the impact of those penalties, Bank officials said. (See: MNI INTERVIEW:Canada PMI Hit By Weak CAD Amid Tariff, Slow GDP)
Most investors and economists see the Bank cutting another 25bps at the March 12 meeting though a large minority expects a pause. Many experts say big rate cuts will be in play if Trump imposes a broad 25% tariff. (See: MNI INTERVIEW: BOC To Cut Faster And Deeper In Trade War)
While more of the Bank's commentary focused on how tariffs would weaken the economy, officials noted they must remain aware inflation may persist beyond any first-round price bump. “In the short run, monetary policy cannot lean against lower growth and higher inflation at the same time.”