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TOP STORY
For defenders of U.S. President Donald Trump’s new trade war, one argument is that the massive U.S. economy would always be better able to absorb economic ruin than either Canada or Mexico. This is true, but that ruin is still turning out to be much larger and more unpopular than the White House appears to have anticipated.
Below, a cursory summary of how Trump’s tariffs have already taken an axe to the U.S. economy.
A fast-growing U.S. economy is now shrinking
The Federal Reserve Bank of Atlanta maintains an index known as GDPNow. Every week, their economists take a basket of indicators — such as housing starts, auto sales, manufacturing spending — and feeds them into a mathematical model which then spits out an estimate of GDP growth.
Only a month ago, GDPNow was forecasting red hot economic growth: In just the first three months of 2025, they figured U.S. GDP could grow from between two per cent to four per cent — which would effectively make the U.S. the fastest-growing developed economy on earth.
With the coming of tariffs, that estimate has dropped off a cliff to minus three per cent. In other words, an economy that was poised for lightning growth is now shrinking rather quickly.
The ‘Trump bump’ has been wiped out
Markets were quite happy about the Nov. 5 election of Trump. His Democratic opponent, Kamala Harris, had been actively touting a host of restrictive economic measures such as price controls, so her loss was greeted as a win for businesses.
What resulted was the “Trump Bump”; a surge in stock prices, equity market values and general good feelings all across the U.S. economy.
In an instant, the trade war has erased almost all of those gains. A series of charts published Tuesday by Bloomberg detailed the extent of the damage. The S&P 500 — an index tracking the stock values of 500 of the largest public companies in the U.S. — hemorrhaged all of its Trump gains on news of the trade war. So did the Russell 3000 stock index. Individual companies like the tech giant NVIDIA saw their stock prices sent back in time by as much as nine months, Bloomberg reports.
As Bloomberg columnist John Authers summed it up, “the deregulatory and tax-cutting parts of the Trump agenda remain as popular as ever on Wall Street. It’s hard to find anyone who likes tariffs.”
Many of Canada’s most critical exports can’t be replaced all that easily
It’s one thing to impose a tariff on an import that can be readily replaced by a U.S.-made alternative, such as beer, beef or potato chips. You’re still forcing consumers to buy a less-competitive version of what they want, but at least that less-desired option is available.
But the bluntness of Trump’s tariffs has revealed a whole bunch of Canadian imports that don’t have easy replacements. As such, Americans are simply being forced to eat the 25 per cent tariff and pass it along to their customers in the form of higher prices.
The inflexible nature of U.S. aluminum demand, for instance, means that Americans are still buying roughly the same quantities of Canadian aluminum, except now at a 10 per cent premium.
U.S. farmers are similarly so dependent on Saskatchewan potash that they’ve been begging the Trump White House for a tariff exemption. The U.S. is only able to produce about 10 per cent of its domestic potash needs, with the rest coming from Canada. “No substitutes exist for potash as an essential plant nutrient,” reads a statement last month by the U.S.-based Fertilizer Institute.
And the “more integrated than ever” North American auto sector risks being hit harder than almost anyone. A profile by Postmedia this week showed how a single auto part can cross the respective borders of the U.S., Canada and Mexico multiple times before it ends up in a completed vehicle.
The example was a piece of Guelph, Ont., scrap metal that eventually turns into an auto transmission after two trips across the U.S. border. With the tariffs, each of those crossings is now incurring a 25 per cent tax. This is why Ford CEO Jim Farley has spent much of the last month warning that tariffs would “blow a hole” in the U.S. auto sector.
Which might be why Trump offered a 30-day tariff reprieve for the auto sector on Wednesday. He’s also tariffed imports of Canadian oil at only 10 per cent. With large swaths of the U.S. Midwest wholly dependent on imports of Canadian crude, 10 per cent is basically as high as it can be tariffed before having a noticeable impact on gas prices.
U.S. factories, rather than being buried in new business, are laying workers off
Protectionist policies such as tariffs are often implemented as a sop to the manufacturing sector. You make foreign goods artificially expensive, which effectively acts as a subsidy for domestic factories as they no longer have to contend with cheaper foreign competitors. The result is higher prices for consumers and lower overall productivity, but at least you have a few extra factory jobs to point to.
So it’s telling that as these tariffs approached, the reaction wasn’t jubilation from the U.S. manufacturing sector. It was the opposite.
An index maintained by the Institute for Supply Management found that U.S. manufacturing reacted to the looming trade war with stagnation: No major orders, no new production lines and instead of hiring sprees, there were layoffs.
“Demand eased, production stabilized, and destaffing continued as … companies experience the first operational shock of the new administration’s tariff policy,” explained a statement by the group.
As to why, it certainly doesn’t help that a lot of manufacturing inputs suddenly got way more expensive, with aluminum being a prime example.
IN OTHER NEWS
There is now a cottage industry of Conservative Party staffers analyzing every single public statement of Liberal leadership frontrunner Mark Carney in order to catch him saying something wrong, contradictory or self-aggrandizing (all three have happened a few times). Their latest pull is Carney saying in January “our economy was weak before we got to the point of these threats.” This week Carney then said “our economy is stronger than the American economy.” And his latter claim is extremely not correct; Canada lags dramatically behind the U.S. on everything from raw size to growth to capital investment to productivity.
Prime Minister Justin Trudeau visited with King Charles III on Monday to request the monarch’s help in preserving “Canada’s sovereign and independent future.” It is very rare that Canada ever uses its monarch as a tool of foreign policy, but the apparent thinking is that U.S. President Donald Trump might be amenable to the King telling him to knock it off with the annexation threats. King Charles III has been criticized for not publicly defending Canada against the prospect of U.S. annexation, but constitutional precedent is pretty clear that Charles isn’t allowed to go to bat for any of his realms unless they ask him to first.
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