Bank of Canada expresses trade tension anxieties

OTTAWA A top Bank of Canada official says with the economy already caught in the middle of the U.S.-China trade war, further escalation of global trade conflicts is a “major preoccupation” for policy-makers.

Senior deputy governor Carolyn Wilkins told a Calgary audience Thursday that the clash between Canada’s top trading partners was a main point of discussion ahead of the central bank’s decision this week to leave its interest rate unchanged. “China and the United States have escalated their dispute, and Canada has been caught in the crossfire,” Wilkins said as she addressed the Calgary Chamber of Commerce.

Weighing international trade risks against signs of an improving domestic economy, governor Stephen Poloz held the bank’s key policy rate at 1.75 per cent Wednesday.

At a level that’s currently below inflation, Wilkins told reporters after her speech the interest-rate setting was “pretty darn accommodative.”

The bank says there’s growing evidence the Canadian economy has been strengthening since a sharp winter slowdown, a slump the bank has predicted was only temporary.

Overall, Wilkins said Thursday that Canada’s economic performance has been “relatively solid” and she expected it to gain speed throughout the year.

The international trade picture, however, could threaten a Canadian rebound from a couple of weak quarters.

In addition to the U.S.-China trade conflict, Wilkins listed disruptions such as Beijing’s new restrictions on some Canadian agricultural products. The central bank is also monitoring the possibility of a trade feud between the U.S. and the European Union.

U.S. President Donald Trump has threatened to apply tariffs on autos from the EU.

“If some of these disputes were to be resolved, that would provide a welcome boost to the Canadian and global economies,” Wilkins said.

“But if the disputes were to worsen and become long lasting, the outlook would be quite different ... Obviously, this remains a major preoccupation for us.”