By Paul Vieira 

The potential rise of trade barriers pose a threat to Canada's economic growth, according to Bank of Canada Gov. Stephen Poloz.

Amid the stark uncertainty over the direction of U.S. trade and fiscal policy under President Donald Trump, who is championing an inward-looking "America First" policy, Mr. Poloz said in prepared remarks delivered Tuesday in Oshawa, Ontario, that it is prudent to remain cautious about Canada's outlook and keep interest rates at near rock-bottom levels.

"We'd like to wait and see how things transpire," Mr. Poloz told reporters after his speech, adding potential changes to the North American Free Trade Agreement pose a challenge to the recovery in business investment.

"We are watching for an investment recovery, but it is going to depend from company to company and whether they have the confidence to do that expansion when Nafta may change," he said.

Mr. Poloz made the comments in a Toronto suburb that is home to a General Motors Co. vehicle-assembly plant and is an area of the country hit hard by the shift of manufacturing jobs to lower-cost countries such as Mexico.

Mr. Poloz highlighted the dangers, however, of erecting barriers to trade. "Responding to tough economic times by turning inward rarely succeeds," he said. "Protectionism does not promote growth, and its costs are steep."

The Bank of Canada has maintained a "dovish" tilt in rate policy, or an inclination to keep rates low, even amid a string of stronger-than-anticipated economic data, due in part to policy uncertainty in Washington, D.C. Three-quarters of Canadian exports, or the equivalent of 20% of the country's gross domestic product, are U.S.-bound.

In addition to Mr. Trump's moves, the pending exit of the U.K. from the European Union has raised concerns about the effect of rising protectionist sentiment on trade and the global economy.

In light of improved readings on Canadian employment, factory shipments, and wholesale and retail trade, economists and traders poured over Mr. Poloz's remarks in Oshawa for clues to any change in Bank of Canada policy. Mr. Poloz said it was his job "to worry much more" about downside risks at this stage, noting frequent setbacks the economy has faced in making a shift from consumption-driven expansion to business investment and exports.

He said the Canadian economy still needs to grow before it catches up with the U.S. The economy is "still pushing up a hill," he said.

Prematurely raising rates amid better economic indicators could throw Canada back into recession, Mr. Poloz warned.

The Bank of Canada issues its next interest rate decision and updated economic outlook on April 12.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

March 28, 2017 13:59 ET (17:59 GMT)