Trump and the Canada Tariffs

US President Trump has expressed his enthusiasm for the use of large tariffs in international relations to correct trade imbalances. He believes they’re a marvelous tool to improve his country’s negotiating position and bolster the US economy.

Trumps arrogant dismissal of Canadians of recent is extremely damaging to our future with the US, however we’re hoping the Republicans can discourage him in self-destructive rants.

He does know our previous Prime Minister, Trudeau was unable to establish any kind of rapport with him, or persuade him of the value of trade.

The end result will be economic damage to Canada and the US, leaving the two countries pondering an economic divorce. His speeches are blunt and unapologetic, but in his view, Canada has not come up with strategies to reduce trade deficits and other matters he’s cited.

How Trump might execute these new tariffs and what the economic outcomes will be is very complex and there’s no way to quantify it all right now.  However, let’s explore the matter of the Canadian tariffs and related issues. Because it’s almost certain tariffs of some kind will happen and Canada’s economy, stock market, and housing markets will be affected.

Trump Likes Tariffs

He’s applied sanctions against Russian oil and will apply them again to Iran and other evil totalitarian regimes. This will raise the price of oil and put pressure on Canada to increase its output. He will feel differently if Canadian oil is stopped. He’ll need to suffer some losses in the battlefield before he’s able to learn respect. Our trade contingency should be and fact-based.

Trumps Data is Out of Date

In Trump’s last term, inflation did not happen with these sanctions and Americans did not suffer. It was only in the Biden era where inflation, trade deficits, and national debt grew uncontrollably, now near $36 trillion in debt.

Trump has data from his first term and will learn from it. His weaknesses during that period likely led to his political downfall. He’s ramping up the threats, aggression and bravado this time and is taking full control.

Trump is likely not seeing the full picture of danger in quick, high tariff rates. That’s dangerous and investors are nervous. The expected year-end rally didn’t happen and the stock market is volatile and floundering.  Big tariffs mean weaker supply, rising costs, and reduced exports for US companies.  The high valuation, bubbled up stock market might even crash (>10%) when the tariffs are set to apply. The Canadian stock market or TSX could plummet.

Effect on the Stock Market

2 months after the election, the post-election rally has been fully erased. Given inflation is under control, earnings are strong, and Trump’s promised tax cuts, deregulation have driven the rally, it must be his tariff plan is likely the key cause of this recent correction.

The S&P 500, NASDAQ, Dow Jones and Russell 2000 are lower than they were at on Nov 6th, and now are heading toward the pre-election fear levels. This means investors are just as afraid of Trump now than they were of Kamala Harris.

Tariffs reduce buying power, raise prices and create lower profitability thus they hamper US America’s biggest monopolies including META/Facebook, Google, Amazon, Apple, and Microsoft who pull billions out of Canada.

Research from cfainstitute.org suggests that the markets don’t like tariffs. The S&P and Megacap stocks fell on tariff announcements. Any company involved in international business will suffer. According to a Charles Schwab report, markets have always grown from Election day to Inauguration Day. This time, the S&P is down 2.5%.

If the tariffs are applied, expect the S&P 500 forecast, Dow Jones outlook, NASDAQ forecast and Russell 2000 prediction to be negative. A stronger US focus will however strengthen the US dollar forecast and may bolster small businesses. The travel sector, manufacturing sector, housing market, and other sectors will face higher costs and diminished business.

Housing and Travel Market Injured Too

The Florida housing market and economy will take a big hit given how much Canadians spend in that state. Building supply tariffs will raise construction costs and delay projects.

Outgoing Prime Minister Justin Trudeau has little to lose in a trade war with Trump. In an interview with Democrat White House spokesperson Jen Psaki, Trudeau said his government isn’t looking for a trade fight with the new administration but will have to retaliate if US tariffs are actually applied.

President Trump has been preaching the theme of strength, thus emboldening Canadian politicians to stand their ground. Pierre Poliviere says he will fight the tariffs with sanctions.  A response is being formulated.

Some Tariffs will Absolutely Happen: Mexico

My view is that these tariff threats are a negotiation tactic. However, his attitude toward Mexico is decidedly poor.

In 2019, he decided to not apply tariffs to Mexico if they maintained a remain in Mexico policy for illegal migrants. Once Biden took office, Mexico reneged on the Trump agreement and allowed 10 million illegal migrants into the US creating massive costs and problems. That raised social costs and public debt, boosted American homelessness, contributed to inflationary government spending, and generated a crime and a fentanyl drug wave across the country that killed tens of thousands of Americans.

Trump remembers this and will likely remind the Mexican President that he was let down and point to the significant financial and cultural damage the US endured. The Mexican President has spoken dispassionately about the US situation, so Mexico will get hit hard with tariffs.

Canadian Tariffs Will Hurt Both Countries

Canada on the other hand has also failed to live up to good neighbor requirements by letting some drugs into the US and reducing its military spending and responsibilities. Canada’s Woke Liberal leader Justin Trudeau, not a favorite of President Trump has burdened Canada’s provinces with harmful regulations and excessive immigration while not providing housing and jobs for the newcomers.

Canadian economists are speculating that his proposed 25% tariffs could create hundreds of thousands of lost jobs and lower Canadian’s standard even further. Toronto’s unemployment rate is currently 8.2% and could rocket this year. Ontario may be the key target of Trump Tariffs with hundreds of thousands of jobs lost. Here’s Premier Doug Ford’s response:

In the case with Canada, most Canadian investment money has moved to the US. This has starved Canadian companies and startups of opportunities in Canada and globally. The Canadian economy is just trying to survive reflected in the CAD USD exchange rate falling to 68 cents.

Current tariffs on Canadian products such as aluminum, steel, and softwood lumber have also hurt Canada’s economy. In terms of loyalty to the US/Canada relationship, Canada hasn’t pursued international trade relations and its made it too reliant on the US.

Trump’s playing hardball. He knows Canada has limited export support with few pipelines to ship Alberta oil and keep the oil sands operational.

The real goods and services trade deficit with Canada is calculated at $40 billion each year yet the Mexico trade deficit is beyond $160 Billion.

Canadian Retaliation?

The Canadian Ambassador is talking down retaliation and trade wars to find workable solutions. But retaliation is where the US could be economically injured.

Canada ships a variety of products including heavy oil at a discounted price (for many decades) and this could be cut. The US needs that crude oil for product manufacturing (e.g., plastics and building materials) and an embargo of oil will impact numerous states.  Similarly, Ontario and Quebec who supply electric power could pull the plug on the Northeast US.

How Will President Trump Bring the Tariffs In?

According to CNN, Trump may invoke the International Economic Emergency Powers Act (IEEPA), which allows the President to unilaterally adjust imports during a national emergency.

Alternatively, he could use the Trading With the Enemy Act and impose any tariff while the U.S. is at war. Trump would have to start a war to do that.

The quickest way by far (to impose tariffs) is the use of the IEEPA,” according to Werner Antweiler, a professor and chair of international trade policy at the UBC in Vancouver.

Waiting for February

Over the next few weeks, President Trump will lay out the full extent of his trade tariffs.

Given Canada’s fragile economy, any tariffs will create economic change and adjustments. These changes might be a blessing and result in Canada beginning to invest in itself. This is something Pierre Polliviere has mentioned many times in speeches. and might be the silver lining in these clouds.

See more on US stock market predictions, US dollar forecast, and the US inflation forecast.

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