OTTAWA--President-elect Donald Trump's pledge to slap a 25% tariff on imports from Canada in his first days in office has clouded the outlook for the Canadian economy, Bank of Canada Gov. Tiff Macklem said Wednesday.
"No one knows how this will play out in the months ahead - whether tariffs will be imposed, whether exemptions get agreed, or whether retaliatory measures will be put in place," Macklem said in prepared remarks he's set to deliver at a press conference, explaining the central bank's decision to cut its policy rate by a half-point to 3.25%.
"This is a major new uncertainty," Macklem added.
Late last month, Trump said he would impose a 25% tariff on imports from both Canada and Mexico due to concerns he has about border security, and an inability to stem the flow of migrants and illegal drugs into the U.S.
Over 20% of Canada's gross domestic product is tied to trade with the U.S. About three-quarters of Canadian exports are U.S. bound, led by shipments of crude oil, automotives and auto parts.
Economists widely expected the half-point cut from the Bank of Canada. Some analysts said they believed the second-straight outsize reduction could be justified due to uncertainty over trade. Some economists said a half-point cut would represent some insurance in the event Trump introduces the tariffs on his first day of office, which he promised in a social-media post.
The central bank's first rate-policy decision in 2025 is on Jan. 29.