By Paul Vieira
OTTAWA--Canadian business executives fear a pickup in inflation with President-elect Donald Trump coming to power and promising hefty tariffs on America's closest trading partners, according to a Bank of Canada survey of executives.
An online survey conducted in December, involving over 900 business executives, also indicated that some firms revised lower their sales outlook, and scaled back investment and hiring plans, based on Trump's threat to impose a tariff of up to 25% on imports from Canada and Mexico.
"Uncertainty about the effects of the new U.S. administration is prevalent," the survey said.
The findings, contained in the central bank's quarterly business-outlook survey published on Monday, underscore the trepidation in Canada, not just among firm executives but policymakers, about the economic impact from Trump's trade policy. Bank of Canada senior officials will incorporate the survey findings when issuing its next rate-policy decision on Jan. 29.
Last week, senior Bank of Canada official Toni Gravelle said a 25% U.S. tariff on Canadian imports, alongside Canadian trade retaliation, "would have a big negative impact on growth." About three-quarters of Canada's exports are U.S.-bound, and trade with the U.S. accounts for over 20% of the country's gross domestic outlook.
Trump formally becomes president after Monday's inauguration. The Wall Street Journal reported that he is planning to issue a broad memorandum that directs federal agencies to study trade policies and evaluate U.S. trade relationships with China and America's continental neighbors--but stops short of imposing new tariffs on his first day in office, as Canada and other trading partners feared.
Trump has cited inadequate border security and a trade deficit as reasons to impose hefty tariffs on Canada. This month, Trump said he would use "economic force" to persuade Canada to become America's 51st state.
Canada has promised forceful trade retaliation in the event that the U.S. hits Canadian imports with tariffs.
The Bank of Canada's online December survey indicated about one-third of companies believed it was premature to say how their sales and business plans would be affected by possible tariffs. However, 40% of respondents anticipate negative effects.
"The most common impact they expect is higher input costs," the survey said. "Several businesses mentioned that trade tensions would raise the general cost of goods." Some firms planned to pass on higher costs to customers, the survey said, while others wouldn't in order to remain competitive.
The central bank reported that some firms have revised down their outlook for sales, hiring and investment.
The main business-outlook survey, involving in-depth interview with about 100 companies, was conducted between Nov. 7 and Nov. 27. Trump issued his 25% tariff threat against Canada and Mexico on Nov. 25, via social media.
The main survey indicated business sentiment had improved but remained in below-average territory. In responses before Trump's threat about a 25% tariff on Canada, firms in the country anticipated improved demand in the coming 12 months. Furthermore, 75% of respondents believed inflation would remain in the Bank of Canada's preferred 1% to 3% range over the next two years.
The Bank of Canada sets interest rates to achieve 2% inflation. The central bank has cut rates by a total 1.75 percentage points since last June, as policymakers try to fuel faster growth and absorb spare capacity in the economy.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
01-20-25 1109ET
