Rules-based trade with US is 'over': Canada central bank head

Macklem has repeatedly warned that the bank's efforts to forecast the Canadian economy had grown increasingly difficult given the tariffs imposed and threatened by Trump.

On Wednesday he made clear that he agrees with Prime Minister Mark Carney, who told the World Economic Forum last week that there would be no going back to a pre-Trump normal in the US-led international system. 

"It's pretty clear that the days of open rules-based trade with the United States are over," Macklem told reporters.

In a speech that has captured global attention, Carney said "nostalgia is not a strategy," urging middle-sized powers who have previously benefitted from the stability of US economic dominance to recognize that a new reality had set it. 

More than 75 percent of all Canadian exports go to the United States and the country remains uniquely vulnerable to Trump's protectionism.

Macklem said Canadian growth remains stunted by US policy. 

Trump's global sectoral tariffs have hit Canada's auto, steel, aluminum and lumber industries hard.

But the most severe disruptions may be yet to come, Macklem stressed.

Trump has so far broadly adhered to the existing North American free trade agreement, which he signed and praised during his first term.

With the United States‑Mexico‑Canada Agreement (USMCA) still holding, more than 85 percent of all bilateral trade has remained tariff‑free.

But talks on updating that deal are set for this year and the Trump administration has indicated it could seek major changes, or may move to scrap the pact entirely, an outcome that would upend the Canadian economy. 

"The upcoming review of the (USMCA) is an important risk," Macklem said.

A volatile geopolitical environment is also complicating Canada's immediate economic future, he added. 

"I'm not going to go through every event, but the month of January has been pretty packed with new geopolitical risks," Macklem said, in an apparent reference to the arrest of Venezuelan leader Nicolas Maduro, Trump's threats on Greenland and the unrest in Iran.  

- US Fed independence -

Macklem also took aim at Trump's efforts to exert political influence on the US Federal Reserve. 

"The US Federal Reserve is the biggest, most important central bank in the world and we all need it to work well," Macklem said.

"A loss of independence of the Fed would affect us all," he warned, but stressed that for Canada the consequences of a politically influenced Fed would likely be far-reaching, given the integrated nature of the neighboring economies. 

An independent Fed "good for America," Macklem said. 

Trump has been seeking to oust Fed Governor Lisa Cook over mortgage fraud allegations, while the Department of Justice is investigating Fed chairman Jerome Powell over the bank's headquarters renovation.

In a rare rebuke this month, Powell criticized the threat of criminal charges against him, saying this was about whether monetary policy would be "directed by political pressure or intimidation."

bs/msp