U.S. tariffs would lower American output after five years: Bank of Canada's Poloz

The head of the Bank of Canada says a broad-based hike in American tariffs would lower U.S. economic output after about five years whether or not other countries retaliate.

In prepared remarks of a Mexico City speech Thursday, central bank governor Stephen Poloz says attempts by countries throughout history to shield their industries and workers from foreign competition have been counterproductive.

Poloz's remarks come as Canadian and Mexican companies face significant unknowns amid talk of fresh protectionist policies, including border tariffs, by the U.S. administration.

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"We know that with protectionism everybody loses eventually, including the country that puts the policies in place," said Poloz's speech, which was to be delivered to the Canadian chamber of commerce in Mexico and the Club de Industriales.

"Clearly, this uncertainty is a significant issue for both Canada and Mexico."

Poloz said it raises the chances businesses will pay higher costs for capital and restrain investment.

Additional risks

The governor also pointed to additional risks for Canadian firms if President Donald Trump follows through on his vow to lower corporate tax rates in the U.S. and if there are delays in the implementation of pro-growth U.S. policies.

Poloz's remarks come as Canada and Mexico prepare to engage with the U.S. on NAFTA's renegotiation, which is expected to begin later this year.

He called upon policy-makers, as well as business and labour leaders, in Canada and Mexico to remind their countries' biggest trading partner how important open trade is for the entire continent.

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Poloz highlighted the North American auto industry, saying it has created tens of thousands of jobs in each of the three countries.

"It is hard to imagine how interfering with open trade or implementing other protectionist policies would benefit these people and their families," he said.

"It would be helpful to hear many more examples from other industries."

He added that regardless of the challenges that may surface in the U.S., he believes there are plenty of ways Canada and Mexico can boost their economic growth by opening up access to markets beyond North America.

'Economic powerhouse'

However, Poloz also outlined the significance of the "economic powerhouse next door" for the relatively small economies of Canada and Mexico.

Last year, 75 per cent of Canada's goods exports were shipped to the U.S., while 81 per cent of Mexico's went north of its border, he noted. At the same time, the biggest shares of Canada and Mexico's imports came from the U.S.

Poloz also said Canada would only have free access to about six per cent of the world economy if it no longer conducted trade with the U.S. But he added the upcoming ratification of Canada's trade agreement with the European Union will broaden its access to markets outside of the U.S.