Bank of Canada governor urges Canada to reduce trade barriers amid supply chain risks

Canada must capitalize on opportunities to secure its position in the evolving global trade landscape, according to Tiff Macklem, Governor of the Bank of Canada.

During a speech to the Canada-UK Chamber of Commerce in London on Tuesday, Macklem highlighted that international trade is undergoing significant transformation.

“International trade is being rewired, recast, and redirected, and we need to be effective at the global table to influence these changes,” Macklem said in prepared remarks.

Although the Bank of Canada does not set trade policy, Macklem emphasized the importance of understanding these shifts, as they affect costs and inflation.

“With globalization slowing, the cost of global goods may not fall as much as in the past, potentially putting more upward pressure on inflation,” he noted. “Trade disruptions could also lead to greater inflation variability.”

The speech follows the central bank’s decision last week to reduce its key interest rate target by a quarter percentage point to 4.25 per cent. The bank aims to maintain inflation within a target range of one to three per cent.

Macklem reiterated his recent remarks, suggesting that if the economy continues on its current path, further interest rate cuts may be on the horizon.

Global trade growth has decelerated in recent years, while public and political support for free trade has weakened. Geopolitical tensions have altered major trading relationships.

China has become a leading exporter of high-tech electronics and developed the world’s largest electric vehicle (EV) industry. At the same time, national and economic security concerns have led the United States to ban certain Chinese products.

Both the U.S. and Canada have also imposed tariffs on Chinese EVs, which are more affordable, as they invest in building their domestic EV supply chains.

Macklem stressed the importance of maintaining the strong Canada-U.S. trade relationship, calling it highly beneficial for both nations.

“Continuing that strong relationship is going to be very important for Canada,” he said.

He also pointed out the changing nature of trade, with services becoming a larger part of global commerce.

Macklem called for investments in trade infrastructure and efforts to reduce trade barriers, noting that shifting supply chains present both risks and opportunities for Canadian businesses.

He underscored the need for Canada to invest in its electricity grid and transportation infrastructure, while businesses should focus on upgrading equipment and fostering innovation to stay competitive.

Global trade is slowing, and the growth that does occur is increasingly focused on services rather than goods, Macklem said, while China’s role in global trade is also shifting.

“We need to strengthen relationships, produce the products people want, develop the infrastructure to bring those products to market, and enhance our productivity to compete globally,” he concluded.