Canada must make urgent structural reforms to ensure its long-term economic prosperity in the wake of the U.S. trade war, the full impact of which has yet to hit the

world’s economy

, Bank of Canada governor

Tiff Macklem

said Tuesday.

“The global economic fallout from the U.S. trade war has so far been milder than first predicted — both because the U.S. tariffs are not as high as initially feared and because

retaliatory tariffs

were limited,” Macklem said during a speech to the Greater Saskatoon Chamber of Commerce. “But the full impact has yet to be seen.”

Macklem said Canada’s economic growth trajectory has been permanently lowered as the result of U.S. trade action and can only be reversed through strong policy action to increase investment and productivity.

“Canadian leaders — business, political and economic leaders — need to chart a new course,” he said. “We should have been making these changes 15 years ago. But the best time is now.”

While monetary policy can support the economy in its adjustment to the new U.S. trade reality, Macklem said it cannot reverse the damage from tariffs. Last week, the

Bank of Canada

lowered its policy rate to 2.5 per cent, the first trim since March amid signs of a weakening economy.

Those signs of weakness include a contraction in Canada’s

gross domestic product

during the second quarter, as exports plummeted almost 27 per cent, and a jobless rate of 7.1 per cent in August.

Some measures Macklem suggested in helping boost Canada’s economy include the removal of interprovincial barriers, expanding east-west transportation links, diversifying export markets and removing barriers to investment by shortening regulatory approvals and reducing regulatory uncertainty.

“We need to learn from the past: the recession in 2009 highlighted how vulnerable we are to a drop in U.S. demand, and everyone talked about diversification then, too,” said Macklem. “But not much happened. This time we need to follow through.”

Macklem noted that the U.S. no longer dominates global trade compared to 25 years ago, with China and the

European Union

joining the U.S. as major trade hubs. Growth in global trade as a whole has also slowed over the last 15 years.

Still, Macklem said the U.S. continues to dominate global financial flows, with the biggest equity and debt markets in the world.

“For many global investors, the question now is whether U.S. dominance in global financial flows will ebb as the United States pulls back from trade and runs large fiscal deficits,” he said.

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The governor also weighed in on issues around the Federal Reserve’s independence.

“And President Trump’s attempts to influence the Federal Reserve are raising questions about the continued independence of U.S. monetary policy,” he said.

Speaking during a press conference with reporters after his speech, Macklem said the reason he decided to speak on Fed independence was because we are starting to see some impacts. Macklem said the greenback’s position as the global reserve currency will likely continue, but its value in times of stress has been “dented.”

“You can see in financial markets, people still want to hold U.S. dollar assets, but foreign investors are hedging much more of that U.S. dollar exposure, that’s putting downward pressure on the U.S. dollar,” said Macklem. “And other safe haven assets, particularly gold, are up quite sharply, gold is up 44 per cent since the beginning of the year.”