Month: March 2025

Trump’s Tariffs Whack Trump Voters Whatever happened to GOP concern for the working class?

The WSJ Editorial Board, who is often sympathetic to Trump:

President Trump won the Presidency a second time by promising working-class voters he’d lift their real incomes. Which makes it all the more puzzling that he’s so intent on imposing tariffs that will punish those same Americans.

Tariffs are taxes, and Mr. Trump’s latest tariffs are estimated to be about an annual $150 billion tax increase. Taxes are antigrowth. That’s the message investors are sending this week since Mr. Trump let his 25% tariffs on Canada and Mexico take effect. The President also raised his 10% tariff on China by another 10%. Canada and China retaliated, while Mexico is holding off until Sunday. (…)

Brace for higher prices on berries, bell peppers, and, gulp, beer. Target CEO Brian Cornell told CNBC Tuesday that tariffs on Mexico may force the company to raise prices on fruits and vegetables. About 30% of vegetables and fresh fruit sold in the U.S. come from Mexico. Modelo’s Mexican-produced Especial is the best-selling beer in the U.S.

Best Buy CEO Corie Barry said Tuesday that Mr. Trump’s tariffs “make price increases for American consumers highly likely.” Nafta, which was supplanted by the USMCA, encouraged electronics manufacturers to set up shop in Mexico instead of China. Hope you don’t plan to buy a smart TV since it could be 25% more expensive.

Energy prices will rise too. Mr. Trump implicitly conceded this by reducing his tariffs to 10% on Canadian energy imports. Despite the U.S. shale fracking boom, constraints on pipeline capacity mean the Midwest and Northeast depend heavily on Canada for natural gas. That means heating bills will rise in Trump country. So will electricity prices.

The U.S. imports about 3,315 gigawatt hours of electricity on average from Canada each month—enough to power about 3.7 million homes. These flows help stabilize the grid and lower prices in the Northeast and Midwest. New England’s grid operator estimates the tariffs could cost the region between $66 million and $165 million a year. Energy makes up 40% of primary aluminum producers’ costs. Several Midwest foundries have closed in recent years amid rising energy prices. The Trump tariffs will harm the very workers he claims to be trying to help.

They will also cause pain at the pump. The U.S. is a net oil exporter, but it still imports about 6.5 million barrels a day of crude, mostly from Canada and Mexico. That’s because refineries in the Gulf Coast and Midwest process heavy grades. It would cost billions of dollars to retrofit them to process light blends from U.S. shale. Drivers of pickup trucks in the Midwest (where refineries depend on Canadian crude) are likely to suffer the most pain.

Speaking of which, we recently told you about an Anderson Economic Group analysis that estimated the 25% tariffs would raise the cost of a pickup assembled in North America by $8,000. Heavy-duty truck prices may also surge as they rely on parts from Canada and Mexico. (…)

The President also professes to love American farmers, but he apparently loves tariffs more. U.S. farmers are already being squeezed by low crop prices and inflation. The American Farm Bureau Federation (AFBF) says farmers are losing money on almost every major crop planted for the third straight year.

Tariffs will increase their pain. About 85% of the U.S. potash supply for fertilizer is imported from Canada. China is hitting U.S. farm exports with a 15% tariff, which will let farmers in Brazil and Australia grab market share. “Even more costs and reducing markets for American agricultural goods could create an economic burden some farmers may not be able to bear,” AFBF President Zippy Duvall said Tuesday.

Mr. Trump’s tariff spree is the triumph of ideology over, well, common sense. Let’s hope the President soon comes to his senses.

Larry Summers Thinks Trump’s Tariffs Are a Disaster ‘I have never seen as irrational a consequential policy put in place by an American administration.’

Here and there:

• Fed officials thought they might have engineered a soft landing over the past 18 months. A few are publicly warning of a stagflationary scenario. “A deterioration of the labor market alongside higher inflation could present difficult choices,” said St. Louis Fed President Alberto Musalem at an economics conference in Washington on Monday. New York Fed President John Williams said Tuesday at an event hosted by Bloomberg that he expected tariffs would lead to higher inflation this year than he had anticipated. Tariffs on consumer goods, he said, “filter into prices that consumers pay. That happens relatively soon.” Tariffs on intermediate goods, meanwhile, take longer to show up but last longer, he said.
• Since the Berlin wall fell, we’ve lived through almost half a century of preferring butter to guns. With the rise of China, and with the U.S. no longer seen as a reliable ally, guns will again take priority. (…) Coming when global alliances are fluid, this shift could also move us toward a multipolar world for the first time since the World War II. Some friends of America are trying to convince themselves that Trump’s term is only for four years, and the next president will be more willing to stick to promises the country has made. But even some committed Atlanticists, such as incoming German Chancellor Friedrich Merz, recognize that once broken such trust can’t be quickly rebuilt. And this week that trust broke. America’s allies need to be able to stand on their own, even if the U.S.—under Trump or his successor—were to turn friendly again.
• Tariffs imposed at the whim of the White House increase the power of the government over business. Companies have to lobby for exemptions for their essential parts and can no longer rely on trade pacts when deciding on factory locations or suppliers—even when the trade deal was struck by the very same president, as with the 2018 U.S.-Mexico-Canada agreement. The uncertainty on its own is bad for business, even without the actual tariffs.
• Roth’s company in Grand Rapids, RoMan Manufacturing, makes components for the giant robots that weld together car panels in vehicle-assembly plants. Some of his biggest customers are in Canada, and Roth worries that they could switch to suppliers in Europe or Japan to avoid paying the tariff. “These are great customers that have been with us for almost 50 years, but they’d be foolish not to look to the Europeans,” he said. “Because I guarantee you there will not be tariffs between the EU and Canada.”
• “Before lunch we were talking to customers on the basis of a 10% tariff, and after lunch it was 20%,” said Nils Haupt, a spokesman for the German containership operator Hapag-Lloyd, referring to the levies on China. He added that customers are exasperated by the unpredictability.
• Most generics and biosimilars in the US contain ingredients made elsewhere or are produced entirely abroad, which will hit consumers immediately, Richard Saynor, the chief executive officer of Sandoz Group AG, said in an interview with Bloomberg TV.
• Joe LaVorgna, chief economist at SMBC Nikko Securities and a former special assistant to President Trump, said tariffs will ultimately benefit the economy despite some short-term pain by incentivizing manufacturing to move to the U.S., especially when combined with corporate tax cuts and deregulation.
• Many manufacturers are trying to diversify away from China to factories in India, Indonesia, Vietnam and Turkey, said Soren Toft, chief executive of Mediterranean Shipping. “What we are not hearing is, ‘I brought my production back to Kentucky.’”
• Brian Horowitz, chief executive of Creative Wagons, an outdoor-goods company, posted a “No Tariff” sign outside his booth. Some 90% of his company’s products are made in Vietnam after he shifted production from China four years ago. “Vietnam has been the best thing I’ve ever done,” said Horowitz (…). The sign, he added, was helping land new customers.
• Vietnam’s industry and trade minister is scheduled to travel to the US to meet US Trade Representative Jamieson Greer next week to discuss the “very good relationship” between the two, as the Southeast Asian nation seeks to avert the threat of tariffs. Vietnam’s trade surplus with the US widened to $123.5 billion last year. It was the third-highest trade gap that any country has with the US, behind China and Mexico, making the manufacturing powerhouse a potential prime tariff target for US President Donald Trump.
• Irwin said the new tariffs are one of the biggest trade shake-ups since 1807, when Congress implemented a virtually universal embargo on foreign trade in response to interceptions of U.S. ships by British forces during the Napoleonic Wars. “It was enormously destructive to the U.S. economy,” he said.
• Lutnick told reporters overnight the Trump administration would probably announce a deal to reduce levies on Canada and Mexico on Wednesday. “It will not eliminate the tariffs, but it might modify the tariffs somewhat,” Lutnick said.     

Trump yesterday: “There will be little disturbance,” he said. “We’re OK with that.”

US Copper Prices Surge as Trump Signals 25% Tariff on Imports

Copper prices surged by more than 5% in New York — leaping further above other global benchmarks — as US President Donald Trump suggested imports of the metal could be subject to a 25% tariff.

Trump’s comments — made in a speech to Congress Tuesday — sparked a frenetic rally in Comex copper prices in Asian hours, as traders reacted to the possibility that tariffs on the metal could be larger than expected, and come much sooner. (…)

“I have also imposed a 25% tariff on foreign aluminum, copper and steel,” he said in his address to Congress. (…)

The surge on the Comex also triggered a smaller rally on the London Metal Exchange, with three-month prices jumping as much as 2.4%. For months, New York futures have been trading at a hefty premium to the LME as investors have priced in the growing likelihood of tariffs, and the additional surge on Wednesday left Comex copper trading about 11.5% higher than the LME, nearing a peak of about 13% seen last month.

The huge differential has already triggered a worldwide hunt for copper that can be shipped to the US before any tariffs are imposed, and traders are likely to redouble those efforts following Wednesday’s fresh surge. (…)

Trump Calls for End to $52 Billion Chips Act Subsidy Program

President Donald Trump called for ending a bipartisan $52 billion semiconductor subsidy program that’s spurred more than $400 billion in investments from companies like Taiwan Semiconductor Manufacturing Co. and Intel Corp.

“Your Chips Act is a horrible, horrible thing,” the president said in a prime-time address to Congress on Tuesday. Trump implored US House Speaker Mike Johnson to get rid of the legislation and use “whatever is left over” to “reduce debt or any other reason.”

His remarks were met with applause in a chamber that passed the Chips and Science Act less than three years ago. Vice President JD Vance, whose home state of Ohio won a massive Intel project thanks to the law, stood up to show his support for its revocation.

The Chips Act is among the most significant US forays into industrial policy in more than a generation. It set aside $39 billion in grants — plus loans and 25% tax breaks — to revitalize American semiconductor manufacturing, as well as $11 billion for chip research and development. The aim was to reduce reliance on Asia for electronic components that power everything from smartphones to massive data centers.

Trump, however, has consistently derided a program he regards as a waste of government funds, arguing tariffs would achieve the same outcome while filling coffers. (…)

Officials on both sides of the aisle have touted the Chips Act as crucial to US national and economic security, and Trump could have a hard time getting congressional support to repeal it. Dozens of GOP lawmakers voted for the measure, and many red districts have won factories or other projects supported by the law.

That includes South Korea’s Samsung Electronics Co. and SK Hynix Inc., which have committed to multibillion-dollar projects in Texas and Indiana that were contingent on funding and support from the US government. (…)

Trump, favoring tariffs over incentives, has signaled that import levies on chips could come as soon as next month. Companies can avoid those duties, he has said, by building factories on American soil. (…)

Trump did not specify whether he would attempt to claw back money that’s already been disbursed, renege on remaining incentives to which the government has already committed, or simply not provide additional support for the chipmaker’s latest investment. Commerce Secretary Howard Lutnick said Monday that the newly announced projects — three additional chip plants, plus R&D and advanced packaging sites — won’t win federal funds. (…)

Lutnick has said he cannot commit to honoring existing contracts without reviewing them first. (…)

So far, his questions to program staff have focused on the rationale behind award decisions and the government’s legal authority to claw money back, Bloomberg has reported. (…)

Meanwhile:

Beijing Ramps Up Efforts For Tech Independence The country aims to develop a system of open-source models

In a speech on Wednesday to the country’s lawmakers, Chinese Premier Li Qiang said AI would be key to boosting China’s digital economy.

Li pledged that China would boost support for applications of large-scale AI models and AI hardware, such as smartphones, robots, and smart cars. (…)

China also said it would foster emerging technologies, including open-source architectures for chip designing.

China has for years attempted to build a semiconductor ecosystem around RISC-V, a major open-source architecture, to reduce reliance on technologies controlled by Intel and Arm.

China Targets Record Deficit to Buffer Economy Against Tariffs

The government set this year’s fiscal deficit target to 5.66 trillion yuan ($780 billion), or around 4% of gross domestic product, according to an annual work report Premier Li Qiang delivered to the national parliament on Wednesday.

That’s the highest level since a major tax overhaul in 1994 revamped the government budget, and roughly in line with an estimate of 4% by economists in a Bloomberg survey. Li also set a growth goal of about 5%, an ambitious target that would require more stimulus than last year to achieve. (…)

China has for decades tried to keep the official deficit at no more than 3% of GDP to demonstrate fiscal discipline. Crossing that implicit red line signals President Xi Jinping is willing to take unconventional steps to boost domestic demand as a trade war with Donald Trump threatens exports, which made up nearly a third of the economy’s expansion last year. (…)

Some 300 billion yuan will fund a trade-in program that subsidizes consumer purchases of cars and home goods, doubling last year’s amount. That increase signaled an emphasis on boosting consumer spending, which the work report named as the top priority for the first time since 2012. (…)

Merz Rips Up Merkel’s Legacy to Unleash Germany Spending Power

Chancellor-in-waiting Friedrich Merz plans to free Germany from the fiscal straitjacket that former leader Angela Merkel had locked her country into for more than a decade, a move that will revolutionize public finances and pave the way for Europe’s most powerful economy to bulk up the region’s defense. (…)

“Events at the Munich Security Conference and in the Oval Office have clearly had a huge impact on the thinking of CDU leader Friedrich Merz,” Greg Fuzesi, an economist at JPMorgan Chase & Co., wrote in a note to clients. “Germany is heading not only for a massive U-turn on fiscal policy but also for a very strong response to the new defense and security challenges.”

(…) the prospective chancellor can’t yet be sure of success, requiring backing from the Greens, who are indignant at being shut out of his negotiations. Any win would then be just the prelude to hard-fought coalition negotiations where his CDU party must now try to achieve concessions from its SPD opponents. (…)

Merz will argue that he has history on his side, given the alarming shift in the geopolitical backdrop augured by the Trump administration.

The prospect of an injection of adrenaline to Europe’s biggest economy, which has languished in stagnation in the wake of the pandemic, is another strong case to make in the ensuing debate. Successive shocks of the energy crisis, Chinese electric vehicle rivalry and weak export demand have left Germany standing out in the region for its weakness. (…)

EU’s €800 Billion for Defense Is Bond Tantrum in the Making The brunt of the EU’s plan to rearm will fall on the shoulders of bond markets. That means sharply higher borrowing costs.

The crumbling transatlantic alliance is undermining the assumptions that have underpinned European financial markets since the creation of the common currency. The result will be a sustained and permanent rise in euro borrowing costs, along with the surge in debt.

As the privilege of super-low German yields cedes to the new order, every other euro nation’s borrowing costs will be pulled higher, along with the European Union’s itself. The mighty German bund has been losing its benchmark shine as its yields surge under speculation of heavy borrowing that took on new meaning as Germany proposed scrapping constitutional fiscal limits to help Europe rearm itself. (…)

The knock-on effect for money managers will be profound. If investors turn against longer-dated debt, it would curtail the ability of euro-zone governments to extend their maturities further into the future. At the same time, doubts over the “risk-free” status of sovereign debt could tempt fund managers into higher-yielding corporate or bank debt alternatives. (…)

What is clear is that swift and smart action is needed to create a permanent structure that can benefit Europe as a more coherent and attractive bond issuer attractive to foreign investors on a much larger scale. (…)

An uplift of 10% extra borrowing across the euro nations wouldn’t be unusual. Much more than that with no parallel rise in euro area growth is going to weaken the euro currency and create a potential doom loop. (…)

Leading European think tanks, such as the Kiel Institute and the Centre for European Reform, are pretty clear that borrowing is the best way forward, not raising taxes. If comparative advantage is used in procurement, shifting the balance of 80% of European armaments being made outside the bloc and prompting economies of scale — such as rationalizing the current 17 European tank manufacturers — then a big defense ramp-up can be growth positive, with knock-on innovation benefits to productivity too.

The economic costs of Trump’s assault on the global order America is trying to undo the very system of open trade that it created

Some excerpts from Martin Wolf’s long piece:

(…) They [Trump’s decisions] represent the end of liberal, predictable and rules-governed trading relationships with the world’s most powerful country and also the one that created the system itself. They also represent the abandonment by the US of core alliances and commitments in favour of a closer relationship with an erstwhile enemy. Trump clearly thinks Russia more important than Europe. (…)

As Maurice Obstfeld, former chief economist of the IMF, has noted, the US’s trade deficits are not due to cheating by trading partners, but to the excess of its spending over income: the biggest determinant of America’s trade deficits is its huge federal fiscal deficit, currently at around 6 per cent of GDP. (…)

Moreover, as the Danish economist, Jesper Rangvid notes in his blog, Trump looks only at bilateral trade in goods, ignoring trade in services and earnings from capital and labour. It so happens that the income the US derives from its exports of services at least to the Eurozone and the returns on capital and the wages of labour it has exported there offset its bilateral deficits in goods. The overall Eurozone bilateral current account balance with the US is close to zero, not that even this matters. (…)

For Mexico and Canada, the economic costs of these tariffs will be high, since their exports of goods to the US were 27 per cent and 21 per cent of GDP respectively, in 2023. EU exports of goods to the US were only 2.9 per cent of its GDP in 2023. For it, therefore, the impact of the 25 per cent tariff would not be that great. Yet it would still be an act of unjustifiable, indeed economically illiterate, economic warfare. The EU would have to retaliate. Transatlantic relations would be permanently damaged. (…)

Trump is waging economic and political war on US allies and dependants. But the resulting collapse in trust of the countries that used to share its values will end up very costly for the US, too.

Business leaders say trade ties with U.S. deeply scarred

Tariffs have permanently tainted Canada-U.S. relations, according to several prominent Canadian business leaders, who say the country needs a new game plan for a changed world.

Regardless of how long the continental trade war launched by Donald Trump on Tuesday lasts, business leaders warn Canada’s economic ties to its southern neighbour will never look the same.

Executives are confident the country will eventually be able to diversify exports away from the U.S. and Ottawa can take steps to improve Canada’s global competitiveness, but that in the meantime Canadians are likely to suffer substantial economic pain. (…)

“Our pain threshold is way higher than America’s because we know what we’re fighting for and we’re united on that,” said Mr. McKenna, deputy chair of TD Securities and a former Canadian ambassador to the U.S. as well as premier of New Brunswick and a member of the Brookfield Corp. board of directors.

“In America, I think the pain threshold is extremely low, because the country is deeply divided and they have no idea why they’re in this mess.” (…)

“We are not going back to where we were. Our friends are no longer the friends we thought they were.” (…)

“I think our freedom is worth a recession,” Mr. Vachon said. “Long-term, well, clearly we cannot rely to the same extent that we did before on the U.S. for security and our economic prosperity. That’s it. So we need a game plan.” (…)

Key to Canada’s trade war strategy will be diversifying Canadian exports. And there, Mr. McKenna said, even changes on the margins will make a major difference.

“If we could move, I don’t know, 20 per cent of our oil to Asia, those marginal barrels set the price, then all of a sudden we create deal tension,” he said. “If we start moving more potash to external markets, or more uranium, that puts a lot of pressure on the Americans.” (…)

“The band of billionaires that support him and other business leaders are going to realize that this is truly mad – by that I mean mutually assured destruction – and will start to pull him back from the ledge,” he said. (…)

Canada should also refuse to renegotiate the U.S.-Mexico-Canada Agreement (USMCA), which Mr. Trump struck in his first term, until the tariff threat is neutralized, said John Manley, former CEO of the Business Council of Canada who previously served as a federal cabinet minister and deputy prime minister. (…)

He said the United States “is no longer a reliable partner, not in security and not in business or trade.”

“There is no point in having a negotiation with somebody like that because you can’t expect them to live up to their commitments,” he said. (…)

“We do need to leave the porch light on,” Mr. McKenna said. “When this is all over, America is not moving geographically. It’s still our neighbour, still our best friend. We are going to resume that relationship.”

Let me remind you what Trump proudly said on January 29, 2020 after signing the new USMCA that he negotiated and signed:

• “The most important deal we’ve ever made by far.”
• “NAFTA was perhaps the worst trade deal ever made.”
• “We have renegotiated this new agreement based on fairness and reciprocity … a very, very good deal for all three [countries], it puts us in a position we have never been before.”
• “It’s a fair deal for everybody…we’ll be working with Canada and Mexico…the region has things that nobody else has…we’ll be doing very well together”.
• “It will transform North America back into a manufacturing powerhouse.”
• “This is a truly extraordinary agreement for the United States, Canada and Mexico …. a partnership with Mexico and Canada and ourselves against the world”.

Warren Buffett said last Sunday that “tariffs are an act of war, to some degree.” Trump has effectively declared an economic war on Canada and Mexico on no reasonable ground. Millions of Canadians and Mexicans will feel economic and financial pain as a result. Canada and Mexico can reasonably invoke national security in their response.

Winston Churchill said that WWII was “the unnecessary war” because it could have been avoided several times. This is another one.

Speaking of Churchill, whose bust was placed near Trump in the Oval Office last week for the Zelinsky meeting, in his book “The Second World War”, he quoted Franklin D. Roosevelt’s fireside chat of December 30, 1940:

There is danger ahead, danger against which we must prepare. But we well know that we cannot escape danger by crawling into bed and pulling the covers on our heads. If Britain should go down, all of us in all the Americas would be living at the point of a gun, a gun loaded with explosive bullets, economic as well as military. We must produce arms and ships with every energy and resources we can command. We must be the great arsenal of Democracy.”

Statesmanship!

Yes, Mark Twain, history rhymes, but sometimes not as well as it should.

To face tariffs, Canada should declare pipeline projects in the national interest: Enbridge CEO

Canada should declare pipeline projects in the national interest if it is serious about widening its energy-market access in the face of U.S. tariffs, says the chief executive of oil and gas transport giant Enbridge Inc. (…)

“If this is the significant crisis that I know many Canadians feel that it is, then you would think you’d want your lawmakers actually making laws to address that.” (…)

Mr. Wilkinson [Canadian Natural Resources Minister] said Tuesday that slapping retaliatory export tariffs on Canadian energy and resources remains an option, though Ottawa first wants to apply pressure on the Trump administration to reconsider its decisions. He added that the government is also “looking for unanimity” with provincial and territorial leaders on its next steps. (…)

Canada is by far the largest foreign energy supplier to the U.S., and numerous refineries, especially in the Midwestern states, are designed to process the gooier crude grades from Alberta’s oil sands.

“It would be very difficult for them [refiners] to find other sources of supply and, equally so, very difficult for the producers in Canada to be able to find other sources of demand.” (…)

Canada must “act with urgency” to secure greater global market reach, given that the relationship with its closest friend, ally and trading partner has “fundamentally changed.” (…)

• Quebec considering stopping U.S. electricity exports to northeast spot market

The province’s Coalition Avenir Québec government is considering stopping shipments of electricity that it currently sells on the U.S. spot market. And it’s also looking at its options for new multibillion-dollar power contracts signed with Massachusetts and New York for transmission projects slated to come online over the next 15 months.

“It’s the start of the commercial war,” Quebec Premier François Legault told reporters Tuesday. “We must not rule out anything.” (…)

He said Quebec is also looking at the legal “feasibility” of breaking supply contracts for future power deliveries signed with the two U.S. states.

The comments echo those of Hydro-Québec chief executive Michael Sabia, who said in a speech last week that Canada cannot let itself get walked over by U.S. President Donald Trump and has to counterattack in a smart but forceful way. The U.S. President wants to break Canada’s confidence, Mr. Sabia said, and this country cannot let that happen. (…)

He said Quebec has important relationships with New York and the New England states and “wants to be a good partner” with them. But he suggested the broader context between Canada and the United States dictates that Quebec needs to review its power-supply agreements.

“Knowing that if America is going to take care of itself, we need to take care of ourselves,” Mr. Sabia said. “Once we’ve taken care of ourselves, if there are other things that we can do on a co-operative basis with the United States, great. … In the circumstances, we are looking at those contracts and we are trying to assess the situation better.” (…)

Recall that Trump said “we don’t need their cars, we don’t need their energy, we don’t need their lumber.” Looks like Canada intends to find somebody who needs them…

Trump Threatens to Pull Funding From Universities Over Protests

President Trump threatened to take away federal funds from universities that allow what he called “illegal protests,” a move legal experts say would violate the First Amendment.

Trump didn’t explain which demonstrations he considered illegal in his social-media post Tuesday morning. (…)

“Agitators will be imprisoned/or permanently sent back to the country from which they came. American students will be permanently expelled or, depending on on the crime, arrested,” he wrote. (…)

Trump’s post Tuesday wasn’t the first time he has issued threats to protesters. He said in an executive order in January that he would deport college students from outside the U.S. who join in protests related to the Israel-Hamas war. (…)

GOP Leaders Tell Lawmakers: No More In-Person Town Halls After several contentious meetings, party chiefs say Republican lawmakers should avoid giving Democrats sound bites

Trump Escalates Global Trade War, Sparking Tit-for-Tat Tariffs

The US new tariffs — 25% duties on most Canadian and Mexican imports and raising the charge on China to 20% — impact roughly $1.5 trillion in annual imports, an expansive move signaling to markets that the Republican president is committed to wielding import duties to obtain fresh revenue and create domestic manufacturing jobs.

Canada hit back with phased levies on $107 billion worth of US goods while China imposed tariffs of as high as 15%, mainly on American agricultural shipments. Mexican President Claudia Sheinbaum on Monday said her government would await Trump’s decision before reacting with any retaliatory measures and is expected to address reporters on Tuesday morning local time. (…)

The tariffs bring American import levies to their highest average level seen since 1943, according to the Budget Lab at Yale. That would lead to as much as $2,000 in additional costs for US households. It also will mean significantly slower economic growth in the US, especially if other countries retaliate, according to a report published Monday.

And Trump has indicated more tariffs are to come, including in April reciprocal tariffs on all US trading partners that have their own levies or other barriers on American products, as well as sectoral taxes of 25% on cars, semiconductors and pharmaceuticals. Those tariffs are also poised to be cumulative — in addition to any across-the-board tariff on a particular nation.

Trump has also said a 25% tariff is in the works for the European Union and is investigating levies on copper and lumber imports. Steel and aluminum tariffs are also set to take effect on March 12, further impacting Canada and Mexico. (…)

The Canadian government late Monday announced it will proceed with a sweeping package of counter-tariffs against US-made products. The first stage is 25% tariffs on about C$30 billion ($20.6 billion) worth of goods from US exporters to go into effect at the same time as the US levies. A second round of tariffs at the same rate will be placed on C$125 billion of products in three weeks — a list that will include big-ticket items like cars, trucks, steel and aluminum. (…)

China imposed tariffs as high as 15% on US goods and banned exports to some defense companies in retaliation to the Trump administration’s new levy. Soybeans, beef and fruits are among products facing a 10% tariff, according to an announcement from the Ministry of Finance. (…)

Trump Takes the Dumbest Tariff Plunge

The WSJ Editorial Board:

(…) We’ve courted Mr. Trump’s ire by calling the Mexico and Canada levies the “dumbest” in history, and we may have understated the point. Mr. Trump is whacking friends, not adversaries. His taxes will hit every cross-border transaction, and the North American vehicle market is so interconnected that some cars cross a border as many as eight times as they’re assembled. (…)

Mr. Trump is volatile, and who knows how long he’ll keep the tariffs in place. Retaliation that hits certain states and businesses may also cause him to reconsider sooner than he imagines. Investors are trying to read this uncertainty as they also watch growing evidence of a slowing U.S. economy. Unbridled Tariff Man was always going to be a big economic risk in a second term, and here we are.

FYI:

• If the tariffs remain in place, they have the potential to profoundly reshape relations between the U.S. and two of its biggest trading partners, abruptly reversing America’s decadeslong project of expanding free trade with its allies. The three countries had been operating under a revised free-trade agreement Trump brokered during his first term. (WSJ)
• BTW, here’s what Trump said after signing the new USMCA on January 29, 2020:
• “The most important deal we’ve ever made by far.”
• “NAFTA was perhaps the worst trade deal ever made.”
• “We have renegotiated this new agreement based on fairness and reciprocity … a very, very good deal for all three [countries], it puts us in a position we have never been before.”
• “It’s a fair deal for everybody…we’ll be working with Canada and Mexico…the region has things that nobody else has…we’ll be doing very well together”.
• “It will transform North America back into a manufacturing powerhouse.”
• “This is a truly extraordinary agreement for the United States, Canada and Mexico …. a partnership with Mexico and Canada and ourselves against the world”.
• On Ford Motor’s earnings call last month, Chief Executive Jim Farley warned that protracted 25% tariffs against Canada and Mexico “would have a huge impact on our industry, with billions of dollars of industry profits wiped out.”
• “Tariffs are an act of war, to some degree …  the Tooth Fairy doesn’t pay them” (Warren Buffett)
• “A 25% tariff on Canada and Mexico would add an estimated $144 billion a year to the cost of manufacturing in the U.S.,” the National Association of Manufacturers said in a handout.
• “A 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally. The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs. These businesses—employing millions of American workers—will face significant disruptions. Ultimately, manufacturers will bear the brunt of these tariffs, undermining our ability to sell our products at a competitive price and putting American jobs at risk.”
• “Canada and Mexico are our industry’s largest trading partners. The American chemical industry imports materials, many of which are unavailable in the United States, adding value and supporting other manufacturing supply chains domestically and abroad, through our exports. The U.S. chemical industry is a net exporter, both in the aggregate and individually with Canada and Mexico, contributing positively to the nation’s trade balance. In particular, the U.S. chemical industry continues to support the USMCA Agreement between the United States, Canada and Mexico.”
• “Tariffs on all imported goods from Mexico and Canada – especially on ingredients and inputs that aren’t available in the U.S. – could lead to higher consumer prices and retaliation against U.S. exporters. Despite sourcing the vast majority of ingredients and inputs from U.S. farms and domestic suppliers, CPG companies depend on global supply chains for certain imports due to unique growing conditions and other limiting factors around the world.”
• “Decades-long trade agreements enabled robust civil aviation and defense trade that resulted in a sky-rocketing positive trade balance over the last 40 years, making aerospace and defense the largest American exporting industry. Tariffs on Canada and Mexico could change that positive trajectory.”
• “PLASTICS is concerned about the new tariffs and their impact on U.S. plastics manufacturing and jobs. While we understand President Trump’s rationale, a blanket tariff policy could have significant economic consequences, disrupting the movement of essential machines, products, and materials that keep American manufacturers running.”
• “During his first term, President Trump was early to recognize the genuine threat that non-market actors pose to U.S. manufacturing industries like ours. This led to more than $10 billion in industry investment since 2016. This investment requires an enormous amount of metal, much of which the U.S. industry must import from within North America.”
• Massachusetts Governor Healey is predicting energy bills and gas prices for Massachusetts consumers will “skyrocket”. “8 out of 10 gallons of gasoline and diesel fuel sold at the pump every day going into tanks of cars of every American here in New England come from Canada. … Gulliver said 90 percent of the jet fuel at Logan Airport also comes from Canada. … According to the President of the New England-Canada Business Council, last year, 0.2% of fentanyl entering the U.S. came from Canada, and only 1.5% of the illegal immigrants came across the northern border.”
• Ford CEO Jim Farley said that if Trump’s 25% tariffs on Mexico and Canada are implemented and remain in effect for the long term, it would “blow a hole” in the U.S. auto industry, with rivals from Asia and Europe poised to benefit. “Frankly, it gives free rein to South Korean, Japanese and European companies that are bringing 1.5 million to 2 million vehicles into the U.S. that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever. Meanwhile, we’re USMCA-compliant with almost all of our content, finished vehicles and components going across the borders. To have the kind of a size of tariff would be devastating,” Farley said.
• The 25% tariffs on goods from Canada and Mexico, as well as an additional 10% tariff on imports from China, could drive up car costs by as much as $12,200 for some models, according to a report from Anderson Economic Group (AEG), a Michigan-based economic consultancy.
• “The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they’re fine.” (JPM David Kelly)
• If tariffs remain in effect, they might push up inflation in March, April and May as firms raise prices to make up for higher import costs, said Michael Feroli, chief U.S. economist at JPMorgan Chase. The tariffs also might hurt U.S. exporters if Canada’s and Mexico’s economies take a hit and if they retaliate with tariffs of their own. “If those countries go into recession, that alone is a reason to expect U.S. exports to those countries to slow,” he said.

BTW, yesterday “the president said TSMC was “way ahead of the game” by agreeing to produce more chips in the US, which he said meant the Taiwanese company could avoid tariffs that he mused could be as high as 50 per cent.” (FT)

The Problem With Car Tariffs: What’s an Import? Supply chains extend across U.S. borders with Mexico and Canada, making it hard to say what’s American-made.

Over the last three decades, since the North American free trade zone was created in 1994, automakers have built supply chains that cross the borders.

Manufacturers achieve economies of scale by building engine and transmission plants that are large enough to supply a number of vehicle factories in North America. Similar thinking works for other parts, too — seats, instrument panels, electronics, axles.

“That harnesses the strength of each country, to the betterment of the companies and to the consumer,” said Sam Fiorani, a vice president at AutoForecast Solutions, a research firm. “Vehicles would be less affordable if all the parts had to be made in one country.” (…)

The 2024 Chevrolet Blazer, a popular sport utility vehicle made by General Motors, is assembled in a plant in Mexico using engines and transmissions that are produced in the United States.

Nissan makes its Altima sedan in Tennessee and Mississippi; the turbocharged version of the car has a two-liter engine that comes from Japan, and a transmission made in a factory in Canada.

Then there’s the Toyota RAV4. Most RAV4s sold in the United States are made in Canada. The Canadian-made models use engines and transmissions that are built in the United States and shipped north — before the completed vehicles are transported into the United States for sale. (…)

While the RAV4 is technically imported from Canada, about 70 percent of the vehicle’s components — as measured by their value — come from the United States, according to the National Highway Traffic Safety Administration, which tracks the place or origin of parts that go into vehicles sold here.

The Nissan Rogue S.U.V. goes the other way. It qualifies as a domestically produced vehicle because it is assembled at Nissan’s plant in Smyrna, Tenn. But only 25 percent of its content originates in the United States. The 2024 version’s engine comes from Japan and its transmission from Mexico, according to data from the traffic safety agency.

In Face of Trump’s Tariffs, Mexico Embraces Its President and Nationalism Before the tariffs went into effect, approval ratings for President Claudia Sheinbaum rose and companies began marketing “Made in Mexico” products.

(…) The Mexican government and businesses have rekindled a “Made in Mexico” campaign. Some Mexicans have called for boycotts of U.S. companies and products, while others have put together lists of Mexican stores and brands to support instead of American ones. (…)

Private companies have taken out nationalistic advertisements, one featuring the president leading the masses and carrying a banner saying, “Mexico united, never defeated!” (…)

Last week, Walmart Mexico, the largest private employer in the country with 200,000 workers, unveiled its efforts to put the “Made in Mexico” seal — with the added word “proudly” — in the aisles of its 3,000 stores throughout the country. Although Walmart is an American brand, Javier Treviño, Walmart Mexico’s senior vice president of corporate affairs, said the company wanted to show customers that it is a Mexican entity and that most of the products it sells are made within the nation. (…)

Supreme Court to Consider Mexico’s Lawsuit Against U.S. Gun Makers The justices will hear arguments in a $10 billion suit by the Mexican government that claims the companies are complicit in supplying drug cartels.

Mexico sued U.S. gun makers and one distributor in 2021, arguing that the companies fueled violence across the border by sending an “iron river” of military-style weapons to cartels.

A majority of the justices may view the case skeptically — the 6-to-3 conservative supermajority has worked to expand gun rights in recent years. But the case has allowed the Mexican government an avenue to make its argument that U.S. companies share in the blame for violence by drug cartels.

Access to guns is tightly controlled in Mexico, and it is nearly impossible for civilians to legally obtain the kinds of military-style weapons favored by the cartels. In their legal filings, lawyers for Mexico cited statistics showing that a majority of guns from Mexican crime scenes — between 70 and 90 percent — come from the United States. They also contend that gun dealers in the states that border Mexico sell twice as many weapons as dealers in other parts of the United States. (…)

Lawyers for Mexico argue that the lawsuit should be allowed to proceed, claiming that they have met the basic threshold to show that gun makers have aided and abetted the cartels.

They claim that some manufacturers have made firearms that appear to directly target Mexican buyers, including a special edition .38 pistol engraved with the face of the Mexican revolutionary hero Emiliano Zapata with a quote that has been attributed to him: “It is better to die standing than to live on your knees.”

U.S. plans to nearly triple anti-dumping duty rates against Canadian softwood lumber

In the looming trade war, Canada’s forestry sector is worried that Tuesday’s 25-per-cent tariffs will be layered on top of existing softwood duties, and a fresh tariff from the new investigation will be stacked on top of higher lumber duties later this year.

In its announcement on Monday for preliminary rate revisions, the Commerce Department said it expects to raise anti-dumping duties for most Canadian lumber producers to 20.07 per cent, compared with the current 7.66 per cent. (…)

The Commerce Department’s decision will be subject to further revisions before a final anti-dumping rate is determined, with an effective date in August.

“B.C. has long maintained that any and all duties on softwood lumber are unjustified, and these anti-dumping duties are based on a biased calculation,” B.C. Premier David Eby said in a statement on Monday. (…)

Canadian softwood recently accounted for 24 per cent of total U.S. lumber consumption, compared with nearly 33 per cent in 2016. (…)

“To suggest our lumber and byproducts are a threat to American security is ludicrous but Trump is going back to his playbook to twist regulations to continue sustained attacks on the Canadian softwood industry and the jobs that depend on it,” Unifor national president Lana Payne said in a statement. (…)

If threatened new tariffs are applied, that would mean a rate of tariffs and softwood duties eventually totalling as much as 80 per cent on Canadian lumber. (…)

Meanwhile, the February Manufacturing PMIs just came out:

S&P Global: US manufacturing sector growth accelerates noticeably in February

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI^®) recorded 52.7 in February, up from 51.2 in January. It was the second successive month that the index has pointed to an improvement in the health of the manufacturing sector, with the rate of growth the best since June 2022.

The strengthening of the headline PMI in February stemmed principally from accelerated gains in both output and new orders.

New work rose to the greatest degree in a year, with firms pointing to stronger market demand for their goods in February. Growth was partially driven by client restocking, with customers reportedly keen to get ahead of higher prices and possible supply challenges should a wider range of goods be subject to tariffs. International demand remained a noticeable drag however on overall order books, with new export sales dropping in February for a ninth month in a row and to the greatest degree since last November.

Production growth was the fastest since May 2022. Growth was driven by a combination of increased sales, plus the clearance of work outstanding. Latest data showed that backlogs declined for a twenty-ninth successive month and to a slightly faster degree than at the start of the year.

Backlog clearance was in part enabled by an expansion of labor capacity. February’s survey data indicated a fourth successive monthly rise in employment, although growth was modest, especially in relation to recent output and order book gains, and down since January.

Job creation was also linked to positive projections for growth in the year ahead. Whilst lower than January’s near three-year high, confidence overall remained comfortably above its long-run trend. Panellists are looking to improvements in the economic and geopolitical climates in the year ahead, which are seen as key in supporting growth in sales and production.

Anticipating further output growth meant manufacturers were suitably encouraged to increase their purchasing activity during February. Marginal growth ended an eight-month sequence of declining input buying, with some firms noting the pre-purchasing of inputs ahead of forecasted price rises related to tariffs. This meant inventories of inputs rose slightly for the first time in 12 months, a considerable turnaround from the steepest cut in stocks for over a year-and-a-half during January.

Cost pressures intensified in February as vendors were reportedly adjusting their price lists ahead of a wider range of trade tariffs being imposed on goods and services. Overall, input price inflation was the steepest since November 2022. Increased supply-side challenges were also evident in February, with average lead times for the delivery of inputs worsening for a fifth month running – and to the greatest degree for nearly two-and-a-half years. Stock and labor shortages at vendors were widely noted.

Faced with increased input costs, average output charges also increased in February to a greater degree. Overall, prices charged inflation accelerated for a fourth successive month to its highest level for two years.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence

“A rise in the PMI to a 32-month high signals an improvement in the health of the manufacturing sector which may only be skin deep.

“Although manufacturing production grew at the strongest rates since May 2022 and new orders increased at the best pace in a year, there’s much to suggest that this improvement could be short lived. Production and purchasing were often buoyed by companies and their customers building inventory to beat price hikes and supply issues caused by tariffs. Exports have meanwhile slumped and supplier delivery delays were the most common since October 2022 amid disruptions to trade caused by tariff worries.

“Business optimism about the year ahead has consequently fallen compared to the buoyant mood evident in January, with February seeing an increase in the number of companies citing concerns over tariffs and other policies introduced by the new Trump administration.

“Worries have noticeably swelled in relation to the inflationary impact of tariffs, which were widely reported as having caused factory input costs to spike higher in February. These higher costs are being passed on to customers, resulting in the strongest factory gate price inflation recorded for two years, which manufacturers fear may in turn not only damage sales in the coming months but also encourage the Fed to take a more hawkish view of inflation.”

ISM Stays Above 50, Thanks to Lift from Long Wait Times

The ISM manufacturing index was in expansion if only barely so at 50.3, although a careful reading of the underlying components suggests this is hardly in an expansionary mood in the factory sector.

New orders fell 6.5 points to 48.6, inventories remain in contraction at 49.9 and employment fell 2.7 points to return to contraction territory at 47.6 in February. These three components all feed into the headline index which was only able to boast a reading north of 50 by virtue of two other components.

The production index fell 1.8 points, but was still expansionary at 50.7, but the real lift came from supplier deliveries which shot up to 54.5. This was the broadest indication of wait-times since the supply chain disruption year of 2022. Longer wait times for supplier deliveries are additive because in normal times such a development is associated with a factory sector that cannot keep up with demand. Since that is not an accurate characterization of what is contributing to wait times today, the “expansionary” signal from the ISM should, for this month at least, be taken with a massive grain of salt.

The prices paid component jumped to its highest reading also since 2022 as the drumbeat of tariff developments continues to dominate the news cycle. (…)

Trump’s tariffs impacted roughly 16% of imports according to our estimates. Effective tomorrow, an additional 42% of imports will be subject to tariffs, meaning more than half the total goods entering the United States will be subject to tariffs.

The manufacturing sector has struggled for the past few years with a higher interest rate environment. Policymakers at the Federal Reserve may opt to look through price increases caused by tariffs, but manufacturers do not have the luxury of looking through their own costs when they try to calculate their profit margin.

Eight out of ten selected industry comments made specific reference to tariffs and their negative impact on their business. Examples include: “customers are still very hesitant to commit” – primary metals, “outlook on the durables side growing more pessimistic” -plastics and rubber. Perhaps none put the issue more succinctly than a respondent in the machinery space who put it bluntly, “The incoming tariffs are causing our products to increase in price.”

Carl Weinberg, chief economist at High Frequency Economics, said:

If they are imposed as threatened, US industrial activity will fold at once, and we will not have to wait until the next ISM survey to know about it. Critical sectors of the economy face existential threats from the Trump tariffs and likely retaliation. Autos, energy, and aerospace are three that come to mind very quickly. Appliances, electronics goods, furniture, and clothing come to mind next.

Uncertain about the economy, 83% of Canadians plan to change money habits

(…) The vast majority of Canadians plan to alter their financial habits in light of the current economic climate, according to a new Leger survey released Tuesday and commissioned by CPA Canada and BDO Debt Solutions. A whopping 83 per cent of those surveyed are changing their financial plans. Two-thirds are cutting back on spending, while about one-quarter of respondents said they’re prioritizing paying off debt.

Oil prices fall after Opec+ confirms crude production increase

Traders had been expecting cartel to postpone plan to boost output. Opec+ said on Monday it had agreed to proceed with the “gradual and flexible return” of 2.2mn barrels a day of oil production over the next 18 months. (FT)

US suspends military aid to Ukraine Russia applauds Donald Trump’s move as EU announces new defence loan facility to ship ‘immediate’ weapons to Kyiv