Canada must look beyond the United States for new trade opportunities in the face of Donald Trump's protectionist threats, Bank of Canada Governor Stephen Poloz says.
The cloud of uncertainty hanging over Canada's relationship with the U.S. is already slowing growth in this country, Mr. Poloz warned in remarks prepared for a speech in Mexico City.
"We know that with protectionism, everybody loses eventually, including the country that puts the policies in place," he said. "And the uncertainty around this threat of increased protectionism is holding back growth."
The threat of protectionism coupled with President Donald Trump's promise of steep U.S. business tax cuts is stifling the willingness of Canadian companies to expand and invest, Mr. Poloz said.
The Trump administration imposed duties of up to 24 per cent on Canadian lumber last month, while threatening unspecified future action against Canada's dairy and energy sectors.
That has helped push the Canadian dollar below 73 cents (U.S.) in recent weeks.
Three-quarters of Canada's exports went to the U.S. in 2016, leaving Canada extremely exposed to what happens there. Mexico is even more dependent on trade with the U.S.
Part of the solution for both Canada and Mexico is to forge new free trade deals beyond North America, without the U.S. That could include reviving the work that went into the stalled Trans Pacific Partnership (TPP), according to Mr. Poloz.
"The bottom line is there is still scope for both countries to improve access to market outside North America," he said.
"Canada and Mexico's shared commitment to open trade means both countries are well placed to thrive, whatever the international environment."
Officials from Canada and 10 other countries are meeting in Toronto this weekend to explore prospects for reviving the TPP deal without the U.S.
Mr. Poloz called the shelving of the TPP "unfortunate." In January, Mr. Trump formally pulled the U.S. out of the deal, which his predecessor Barack Obama had championed as a counterweight to the growing clout of China.
"The antidote to uncertainty is certainty," Mr. Poloz said.
Canada currently has free trade agreements with 15 countries, representing for than a fifth of the global economy. That will grow substantially when the Canada-European Union trade deal comes into force in July.
But if you "take the United States out of the picture," Canada would have access to just 6 per cent of the world's GDP, he remarked.
Mr. Poloz also said that the U.S. risks damaging its own economy by restricting the access of Canadian companies to its market. He pointed to the auto parts sector, where Canadian companies have more than 150 plants in the U.S., employing 43,000 Americans.
"It's hard to imagine how interfering with open trade or implementing other protectionist policies would benefit these people and their families," he said.