Tariffs are Here

Weekends are now the focal point of market activity. Last week featured DeepSeek, while this weekend revolved around tariffs. International markets saw strong performance last week. Healthcare and Consumer Staples led in the US, while Tech and Energy lagged behind.

Markets will open down this morning due to tariffs.

Canadian 10Y down 21 bps, US 10Y down 9 bps. The greenback recorded its strongest week since November amid White House warnings of 25% tariffs on Mexico and Canada, and a 10% levy on China. Energy led commodities lower, precious metals rallied and crypto sold off further over the weekend.

Economists have been left puzzled by Trump’s move. Immigration and fentanyl are likely cloud cover so Trump could exploit a loophole in the USMCA and apply the tariffs. The uncertainty may be enough to shift future business investment to the US from Canada. Canada announced retaliatory tariffs. Trump says he is unconcerned about the market reaction to his trade policy. Flexport is hosting a webinar on Thursday, on the impact of these tariffs, might be worth checking out.

Below is Marko Papic’s framework for Trump’s negotiating tactics. Strategists and markets still think these will be short lived but then again, they thought he would never follow through in the first place. Trump is supposed to speak to both Mexico and Canada today.

This is a trade war with their 3 largest trading partners. Trump also threatened tariffs on the EU over the weekend.

Seems like a short sighted strategy to go after your few remaining close trade partners.

If the US wants to, they have the leverage in the negotiations. Canada and Mexico are far more dependant on the US economy than vice versa.

BMO has released its initial assessment of the tariffs, assuming they will remain in place for a year.

• 0.25% rate cut at every Bank of Canada meeting until October, ending at 1.5%

• Loonie falls to $0.64-$0.65 US

• 0% GDP growth in 2025

• 8% unemployment rate

Energy imports have lower tariff rates at 10% and apparently, tariffs do not apply to Canadian O&G if it is just transported through the US for export. Looks like the auto industry will be hit the hardest. Expect Detroit to speak up. See headline below:

Tariffs will shut down North American auto production within a week, industry warns

Canada’s auto sector exported $51B worth of vehicles in 2023 and 93% of them went to the U.S. Within days, the entire industry could shut down.

If Canada, were able to export our energy to global markets going around the US, they would have a lot more leverage in these negotiations. Hopefully, this is the wake up call required to get these projects built.

Below is a list of some of the most affected products by the tariffs. In the short-term tariffs are expected to be broadly inflationary as it is a new 25% tax on most of these imports.

If these tariffs last, Canada is in trouble. An unemployment cycle will expose already over levered households and further pressure the housing market.