The impact of U.S. President Donald Trump’s tariffs is already showing up in the spending habits of Canadians, the Bank of Canada noted on Wednesday.
Wary of economic hardships, Canadians are becoming more cautious with spending and planning savings, the Bank of Canada said in its summary of deliberations after its most recent rate cut earlier this month.
“Tariffs on steel and aluminum and threats of additional tariffs, compounded with the unpredictability of the US administration, were already affecting the economic decisions of consumers and businesses and this was significantly weakening the near-term outlook,” the Bank of Canada said.
On March 12, the Trump administration’s steel and aluminum tariffs went into effect, prompting Ottawa to issue retaliatory tariffs.
Hours later, the Bank of Canada cut its benchmark rate by 25 basis points in an already scheduled decision date, bringing it down to 2.75 per cent. This was the bank’s seventh consecutive interest rate cut.
Bank of Canada governor Tiff Macklem said in a statement Wednesday that while Canada’s economy had entered 2025 on “solid footing,” with inflation remaining close to the bank’s two per cent target rate since last summer, Trump’s tariffs pose a new challenge.
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On April 2, the U.S. is set to impose sweeping and “comprehensive” reciprocal tariffs on all its trading partners.
Trump said the tariff would differ depending on the tariffs and other trade measures individual countries impose on U.S. goods.
The summary, released Wednesday, said, “Initial results from recent Bank surveys suggested that intensifying trade tensions and pervasive uncertainty were hurting confidence and leading consumers to be more cautious.”
“A planned increase in precautionary savings was noted along with a shift in consumers’ spending plans for major purchases.”
It’s not just consumers; businesses, too, are treading carefully into Trump’s trade war.
“The Bank’s surveys also indicated that trade uncertainty was prompting businesses to revise down their sales outlooks, especially in manufacturing and sectors dependent on discretionary consumer spending,” the report said.
“Many businesses reported scaling back their investment plans and hiring intentions.”
At the same time, tariffs are weighing heavily over the federal election campaign.
The Liberals are pledging to build an “all in Canada” auto network to help protect Canadian workers from Trump’s trade war.
Liberal Leader Mark Carney unveiled his party’s plan on Wednesday for the country’s auto sector, which will create a $2-billion “strategic response fund.”
Conservative Leader Pierre Poilievre was in Quebec, where he said, “For President Trump, my message to him again is: knock it off.”
“These tariffs are simply causing chaos in markets,” Poilievre said. “They’re dislocating workers on both sides of the border. Stop threatening Canada with tariffs. Stop talking about our sovereignty. We are two countries that have been two wonderful friends over centuries. It is better to build on that Canada-U.S. friendship as two separate and sovereign countries.
“If the president does hit us with more tariffs, we will retaliate.”
Campaigning in Hamilton, a city hit hard by the U.S. steel tariffs, NDP Leader Jagmeet Singh said he would bring in a plan that focuses on relief for workers who lose their jobs.
“With the threats of Donald Trump, people are worried that this trade war — one that we did not want, one that we did not start, but we’ve got to fight back and defend our country — might mean that the costs are going to go up even higher,” he said.
“So, we’ve a plan to fight back against that. I plan to fight back to get people relief.”
The next Bank of Canada rate decision is scheduled for April 16.
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Batten down the hatches? Canadians cut spending amid tariff fears
