Former Bank of Canada governor Stephen Poloz says we are “seriously outgunned” by the Americans in a trade war, arguing Canada will still need the United States down the road.

“When the dust settles, we will need our U.S. partnership, just as much as we need it today,” said Poloz, now special adviser to Osler, Hoskin & Harcourt LLP, during a webinar recorded on Monday. “We need to keep our eye on that long-term. This is not the Hatfields and the McCoys. We have to think long-term and make the best of a bad hand at this stage, knowing that there will be another hand in due course sometime in the future.”

U.S. President Donald Trump is set to announce reciprocal tariffs on all countries on April 2, and it isn’t clear if goods covered by the Canada-U.S.-Mexico Agreement (CUSMA) will remain exempted from tariffs beyond that date.

The Bank of Canada estimates a protracted trade war with the U.S. would cause Canada’s GDP to decline by three per cent over the next two years. Desjardins Group economists predict Canada’s economy will head into a contraction as soon as the second quarter of this year.

Poloz said while the forecasts for the Canadian economy are “grim” he does not believe them to be “existential.” He said he is optimistic that Canada can find a practical solution.

“People forget that trade doesn’t happen between countries, it happens between people,” he said. “And those people still like each other, still respect each other, still want to do business together.”

The trade war with the U.S. is set to dominate the federal election, which kicked off on Sunday, with Conservative Party leader Pierre Poilievre and Liberal Party leader Mark Carney both promising income tax cuts to Canada’s lowest earners.

Poloz said the trade war will require a fiscal response, though he does not think it will require one at the same scale seen during the pandemic.

“My hope is it will lean on promoting investment, more than we have in other slowdowns, as opposed to just household spending,” he said.

Last week, the federal and provincial governments announced their plans to remove internal trade barriers, and have free trade within the country by July 1.

Poloz said the gains will be significant for the Canadian economy.

Moving forward, Poloz also had a number of suggestions to make Canada’s economy more competitive. These include declaring energy and resource projects within the national interest, leaning into technological innovation, creating a better tax system for the manufacturing sector and using revenue from retaliatory tariffs to fund tax cuts.

“We’re on the cusp of a major technological revolution. The world is going to change in so many different ways, more of the trade will be in services, not in goods,” said Poloz. “There are just so many other things changing in a positive way. What we need to do is get ourselves in a position to take advantage of it all, and we can.”

• Email: jgowling@postmedia.com

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