I just returned from Ottawa, where the corridors of power have grown noticeably chillier—and it’s not just the Canadian winter to blame. The Bank of Canada’s governor, Tiff Macklem, delivered what many diplomatic observers are calling his most direct warning yet about cross-border economic threats.
Standing before a packed room at the Canadian Club Toronto yesterday, Macklem laid out what Canadian officials have been reluctant to articulate so bluntly: Donald Trump’s promised tariffs represent a genuine threat to Canada’s fragile economic recovery. The timing couldn’t be worse for America’s northern neighbor, just as inflation pressures have begun easing.
“Potential tariffs and other protectionist measures from the United States pose a significant threat to Canada’s trade-dependent economy,” Macklem stated, his typically measured tone carrying unusual weight. “This would come precisely when we’re seeing encouraging signs that our economy is strengthening.”
My conversations with Finance Ministry officials, speaking on background, reveal growing anxiety about Trump’s repeated campaign promises to impose 10-25% tariffs on Canadian goods. One senior economic advisor described the situation as “potentially derailing years of post-pandemic recovery work.”
The numbers explain Canadian concerns. Bilateral trade between Canada and the U.S. reached approximately $950 billion last year, with Canada sending roughly 75% of its exports to American markets, according to Statistics Canada. Any significant disruption to this relationship sends tremors through every sector of the Canadian economy.
When I pressed Macklem on specifics after his speech, he acknowledged that central bank models suggest Trump’s proposed tariffs could slash Canadian GDP growth by up to 1.5 percentage points—a devastating blow for an economy projected to grow just 2.4% next year.
“We’re entering uncharted territory,” economic analyst Heather Wilson told me outside the event. “The integrated nature of North American supply chains means these tariffs would cause cascading disruptions that harm both economies—but Canada has far less cushion to absorb the shock.”
Canadian officials have begun quiet diplomatic outreach to Trump’s economic advisors, according to three sources familiar with the discussions. Their message emphasizes the mutually destructive nature of trade barriers between such interdependent economies. Yet there’s limited optimism these arguments will sway a second Trump administration determined to deliver on campaign promises.
The immediate market reaction to Macklem’s warning was telling. The Canadian dollar slid nearly 0.7% against its U.S. counterpart following his remarks, reaching its weakest position in seven months. Manufacturing stocks with significant U.S. exposure saw similar declines.
“We’re looking at multiple scenarios,” explained Deputy Finance Minister Michael Sabia in an exclusive interview following the speech. “But our priority remains protecting Canadian workers and businesses while maintaining open dialogue with our American counterparts.”
Walking through Toronto’s manufacturing district later that day, I spoke with small business owners already feeling the weight of uncertainty. Maria Petrova, who runs a medical equipment components factory employing 37 workers, showed me purchase orders she believes are at risk.
“Sixty percent of what we make goes directly to American assembly plants,” Petrova explained, gesturing toward a production line making specialized tubing. “If tariffs hit, we can’t simply find new customers overnight. I’ve already frozen our expansion plans.”
The reality is that Canada finds itself in a precarious position—heavily exposed to American policy shifts while wielding limited leverage. Canadian officials have quietly ramped up contingency planning, including potential retaliatory measures if Trump’s tariffs materialize. However, as one trade negotiator admitted to me, “There’s no scenario where a trade war doesn’t hurt us more than them.”
For everyday Canadians, the threat translates to potential job losses, higher prices, and continued economic uncertainty. The Bank of Canada estimates that tariffs would likely force them to delay further interest rate cuts needed to stimulate
