Trump Sows Confusion Around Global Tariffs Timing, Scope

President Donald Trump on Wednesday gave a series of apparently contradictory answers about his plans to enact tariffs on Canada and Mexico, as well as the European Union.

Trump was asked during a Cabinet meeting on Wednesday whether he planned to move forward on imposing 25% tariffs on Canada and Mexico on March 4. Trump announced the levies earlier this month, but then subsequently agreed to a month-long delay after leaders from both countries agreed to stricter border control measures. But that delay is set to expire next week.

“I’m not stopping the tariffs,” Trump said (…).

But Trump later said that the Mexico and Canada tariffs would be implemented on April 2. It wasn’t clear if the president meant that he was giving the countries additional time, or had conflated the Canada and Mexico tariffs with a separate program, under development by the Commerce Department and US Trade Representative, that would impose so-called reciprocal tariffs on nations across the world.

Trump was also asked later about if he had decided on a specific tariff for the European Union. The president said those duties would be 25%, but then launched into remarks about tariffs on automobiles and other topics.

A White House official said later Wednesday the deadline for Canada and Mexico tariffs remains March 4 and Trump had not yet decided whether to grant another extension. A report on possible reciprocal tariffs is due at the beginning of April, and those duties could hit Canada and Mexico, but are still separate from the import taxes Trump has threatened related to drug trafficking and illegal immigration, the official said.

Trump’s proposal for a 25% tariff on the EU is new but all options are being considered on whether those would affect all exports from the bloc or only certain products or sectors, and no decisions have been made, the official added. (…)

Trump and other administration officials have previously given contradictory answers about whether the 25% Mexico and Canada tariffs would be on top of the so-called reciprocal tariffs, which are pegged to tariff and non-tariff barriers imposed on US goods, or incorporated into the program set to hit in April.

“The tariffs go on, not all of them, but a lot of them,” Trump said Wednesday of the April deadline. “And I think you’re going to see something that’s going to be amazing.”

Commerce Secretary Howard Lutnick interjected to say Canada and Mexico were given a 30-day reprieve to prove they were successfully stopping the flow of migrants and fentanyl into the US, and “if they have” then Trump would “give them a pause or he won’t.”

“It’s going to be hard to satisfy,” Trump added, suggesting again that the North America tariffs could hit next week.

In addition to his Canada and Mexico tariffs and worldwide reciprocal tariffs, Trump has previously promised sectoral tariffs on imports of lumber, automobiles, semiconductors, and drugs, among other goods. It again was not clear if Trump on Wednesday was referencing those tariffs — which he has previously said would be at the 25% level — when talkinmg about European duties or an additional tax on EU goods.

Trump did say he viewed the EU as “a different kind of case” from other situations because he viewed the group as having been “formed in order to screw the United States.”

“They’ve really taken advantage of us in a different way,” Trump said.

Amazing indeed, but not amusing.

Navigating Tariffs

Goldman Sachs:

(…)Tariffs affect US imports, exports, and the trade balance in three key ways. First, tariffs lower US imports from the rest of the world because they increase import costs. If other countries retaliate—as we expect they will—US exports are likely to fall too.

In Exhibit 5, we leverage estimates from two prominent studies that used detailed product-level data across countries to estimate the effects of higher tariffs on import and export demand.2 On average, these studies suggest that a 1pp tariff increase on foreign products lowers imports by about 2% and narrows the trade deficit as a share of GDP by about 0.3pp. A full retaliatory tariff lowers exports by about 1½%, or 0.2pp of GDP, offsetting much of the drag from the original tariffs and implying only a 0.1pp narrowing in the trade deficit. (…)

The second way tariffs can influence the trade balance is by changing the value of the dollar relative to foreign currencies, which can happen through a few different channels. First, lower demand for imports in the US reduces demand for foreign currency with which to buy those imports. Second, the hit to foreign exports lowers growth and reduces demand for foreign currency to invest in overseas assets. Third, higher uncertainty increases demand for the dollar as a safe-haven currency. Offsetting this, tariffs raise prices and lower real income for US consumers, which weighs on growth and the value of the dollar. (…)

Our results confirm the prediction that exchange rate changes pass through to US export prices much more quickly and to a larger extent than to US import prices, suggesting that dollar appreciation in response to tariffs weighs on exports by much more than it boosts imports.

Third, tariffs can slow domestic growth by lowering households’ purchasing power, with similar effects on foreign growth in the case of retaliation. These changes, in turn, can lead the Fed and foreign central banks to respond by changing the policy rate, which feeds back into the exchange rate and shifts capital flows and the trade balance.

(…) the model suggests that tariffs will likely have a modest effect on the trade balance; that a tariff shock eventually weighs on both US and foreign growth; and that dollar invoicing of international trade introduces some asymmetry between the US and the rest of the world, even in the case of retaliatory tariffs. (…)

Taken together, we expect the trade balance to narrow only modestly over the next year, going from 3.2% of GDP in 2024Q4 to around 3% in 2026Q1 (left side of Exhibit 10). The trade balance could narrow further if other countries do not retaliate against US tariff increases or if the dollar appreciates by less than we expect. On the flip side, US growth outperformance and further dollar appreciation would boost imports relative to exports and widen the trade balance, though we note that the ultimate effects of tariffs on US vs. global growth are ambiguous.

Even if tariffs have only a limited impact on the trade balance, we expect them to unambiguously lower the overall volume of trade, pushing down exports and imports as a share of GDP by 1pp each (right side of Exhibit 10).

But models do not account for second order effects like the “beaver slap”:

Buy Canada, Bye America’: Trump’s Taunts Spur Fury in the North Grocery stores are promoting homegrown produce to consumers as 85% of Canadians hunt for alternatives to US goods.

In Canadian grocery stores, US-grown produce is wilting on the shelves. Local executives are scouring wine lists over dinner to avoid ordering California pinot. And in Toronto, a 73-pound Great Pyrenees-Poodle mix named Izzy is no longer allowed to eat American dog food.

As US President Donald Trump has threatened tariffs, made 51st state jabs and referred to the country’s prime minister as “Governor Trudeau,” furious Canadian consumers have turned into vindictive shoppers: American-made products are out; everything else is in.

It’s a significant shift for a country that purchases almost as much in US goods each year as the entire European Union — a total of $349.4 billion in 2024, according to the US Department of Commerce. Canada has also been the largest source of foreign tourists to the US, according to the US Travel Association, with travelers spending $20.5 billion last year. Now, many are cancelling trips. (…)

A survey of 3,310 Canadians by the Vancouver-based research firm last week found that 85% of people plan to replace US products with alternatives. Nearly half of respondents said they would change their travel plans to avoid the country. (…)

Meanwhile, one of the country’s largest law firms, Fasken Martineau DuMoulin, lost C$1 million ($699,000) in deposits by ripping up plans to bring its lawyers to Las Vegas, according to a Globe and Mail report.

Canadian airlines also have begun to scale back flights to the US in anticipation of falling demand. (…)

“Donald Trump has the ability to get people in other countries upset quite easily,” said David Soberman, a strategic marketing professor at the University of Toronto, who expects a similar reaction from consumers in Europe and Asia. Companies with executives aligned with Trump, like Elon Musk’s Tesla Inc., could face a particularly sharp backlash.

Tesla sales plunged 45% last month across Europe as other EV makers saw a surge in demand. Chrystia Freeland, who’s in the race to become Canada’s next prime minister, has already floated the idea of applying a 100% tariff on the company’s electric vehicles. (…)

“We want to keep our economic sovereignty,” said Christopher Dip, a Montreal-based engineer who developed an app called Buy Beaver that scans barcodes to tell consumers whether a product is Canadian. Dip said it’s the fastest-growing app he and his business partner have developed, garnering 35,000 downloads in two weeks. (…)

To stick to their principles, Canadians will have to make some sacrifices, not least on cost. (…) Still, furious Canadians said it’s worth the extra money. (…)

Dockworkers Approve Labor Deal Six-year contract includes a 62% pay raise and protections against fully automated machinery at East Coast and Gulf Coast ports

(…) The October walkout ended after Biden-administration officials intervened and helped broker a tentative deal that raised the base hourly rate for ILA port workers to $63 from $39 over six years.

That left the union and the United States Maritime Alliance, which represents port employers and ocean carriers, to negotiate other issues such as benefits and the contentious topic of automation on the docks.

President Trump, following his election victory in November, threw his weight behind the union. Trump said he opposed automation and encouraged employers to invest in wages instead of machinery. (…)

ILA officials say the contract will cost employers a total of roughly $35 billion, almost double the sum for the last multiyear deal. They say the agreement includes important provisions that block the use of fully automated cranes at ports.

Employers say the deal allows them to more quickly roll out technologies that will help them move larger cargo volumes more efficiently across the docks. They also secured a commitment from the union to crack down on absenteeism when workers either don’t commit to working a needed shift or don’t show up to assigned jobs. (…)

Number of 401(k) Millionaires Rose 27% in 2024, Fidelity Says The surging stock market helped increase the number of retirement accounts with seven figures.

The number of 401(k) accounts with balances of $1 million or more at Fidelity Investments rose 27% to 537,000 in 2024, driven by a banner year in the stock market, the company said. (…)

About 60% of Americans have access to 401(k)-type plans, and the vast majority of accounts have far less than $1 million. In fact, the average balance at Fidelity was $131,700 at year end. However, contribution rates have remained steady. (…)

Gen Z savers, the oldest of whom are now 28, were no savings slouches, either. Members of that generation who have contributed to their 401(k) for five years saw average balances rise 66% to reach $52,900. Such a huge jump is likely due to having a high proportion of their savings in equities.

Overall, almost 40% of retirement savers bumped up their contribution rate last year, for an average increase of 2.9%. A chunk of that likely came from the use of auto-escalation plans, which automatically raise an employee’s contribution rate by 1% a year. About 90% of savers got a contribution from their employer, Fidelity said.

CONSUMER WATCH

February U.S. Light-Vehicle Sales Maintain Growth; Inventory Resumes Gains

Sales are recording solid gains, but production slowdowns capping dealer stock in a growth market – a market that ostensibly still is climbing out of the trough caused by the pandemic and supply-chain issues – suggest the industry overall wants to maintain profit margins but also has a high level of uncertainty about 2025 and does not want to be in a position of having to make sudden, bigger cuts if the market weakens at some point this year.

CalculatedRisk: “On a seasonally adjusted annual rate basis, the Wards forecast of 15.9 million SAAR, would be up 1.9% from last month, and up 1.5% from a year ago.”

• The Average Age of US Passenger Cars: 14 Years (Apollo)

Trump says tariffs on Canadian and Mexican imports going ahead

U.S. President Donald Trump said he intends to move ahead with punishing tariffs on Canadian and Mexican imports in the coming days despite efforts to persuade the administration to back off on trade measures that would hurt the integrated North American economy. (…)

Mr. Trump said the “tariffs are going forward on time and on schedule.” (…)

• Bank of Canada governor’s tariff warning: ‘There won’t be a bounceback’

If Canada is hit by sweeping, broad-based tariffs from U.S. President Donald Trump, the hit to the Canadian economy could be permanent, Bank of Canada governor Tiff Macklem is warning. (…)

“We may eventually regain our current rate of growth, but the level of output would be permanently lower. It’s more than a shock — it’s a structural change,” he said. (…)

He said the Bank of Canada estimates an 8.5 per cent decline in the first year following broad-based tariffs, with Canadian exporters expected to respond by cutting production and laying off workers.

He said, “With exports to the United States accounting for roughly one-quarter of our national income, the shock would be felt across Canada.”

This would lead to lower household income, he said.

And Canada’s retaliatory tariffs would mean higher inflation.

“As a result, consumer spending on everything from cars to entertainment and housing would slow,” he said, projecting a 2.5 per cent decline in consumer spending by mid-2027.

Macklem said broad-based tariffs would “wipe out growth in the economy” for 2025 and 2026, forcing Canadian businesses to cut investment spending. (…)

U.S. to Hit Chinese Ships With Hefty Port Fees Proposal would hit shipping giants Cosco and Maersk with millions in new fees to enter U.S. ports

The proposal, unveiled on Friday by the office of the U.S. Trade Representative, would impose millions of dollars in new fees each time one of these vessels enters a U.S. port, adding costs that would likely be passed down to U.S. importers and exporters through higher freight rates.

Chinese shipyards accounted for more than half of the cargo ships, tankers and other ocean vessels that were built in 2023 to ferry goods across the seas for everyone from Amazon to Volkswagen, as well as U.S. farmers and energy producers.

(…) China operated about 19% of the world’s commercial fleet as of January 2024, according to the U.S. government

The proposed fees would also affect large non-Chinese companies such as Maersk and MSC, who have purchased scores of vessels from China’s busy shipyards. Big boxships make multiple port calls to U.S. ports, substantially multiplying the fees. (…)

Chinese-built ships face fees of up to $1 million for each U.S. port call based on the size of a company’s Chinese fleet, even those vessels that don’t sail to the U.S. There would be a second fee of up to $1 million based on how much of a company’s future ship orders come from Chinese shipyards.

And for Chinese-owned operators like Cosco, there would be an additional fee of up to $1 million for each U.S. port call based on the ship’s size.

“For containerships their costs will be at least 10 times higher than existing charges and affect American importers, exporters and consumers,” said Lars Jensen, chief executive of Demark-based Vespucci Maritime, who advises several top shipping lines. “I hope that the public debate will avert this madness.”

The proposal also mandates that a certain amount of U.S. exports are moved on U.S.-flagged and U.S.-built vessels. It seeks to restrict 1% of U.S. exports this year to vessels run by U.S. operators. The restriction would increase over time so that in seven years, 15% of exports would need to move on U.S.-flagged vessels, including 5% on U.S.-built vessels.

The U.S. no longer produces any significant number of commercial oceangoing ships. Several shipyards have only one big customer, the U.S. Navy, and those yards are often battling backlogs, worker shortages and cost overruns. Most of the commercial ships that China doesn’t produce these days come from South Korea or Japan.

Apollo Management’s Torsten Slok offers a great chart package on inflation. None of the charts include anything tariffs related yet:

The Outlook for US Inflation

There is a long list of forces pushing inflation higher, including tariffs, rising wage growth, higher inflation expectations, easy fiscal policy, easy financial conditions, residual seasonality, and a slowdown in apartment deliveries putting upward pressure on rents later this year, see complete list below. Our latest inflation outlook is available here.

Euro-Zone Wage Growth Cools From Record, Backing ECB Cuts Fourth-quarter negotiated pay up 4.1% after 5.4% gain in third

(…) The data back the ECB’s assumption that salaries are set to rise more slowly from here after they caught up to the consumer-price surge of recent years. That should eventually also lead to easing services inflation, which has been stuck around 4% for months and is a lingering concern for policymakers. (…)

The ECB has relied on various indicators to monitor pay growth in the region, including a tracker meant to predict future developments. That measure continued to signal a sharp slowdown this year when it was updated earlier this month.

Euro-area firms also told the ECB that they expect pay increases to slow to 3.6% this year from 4.3% in 2024. A further deceleration is seen in 2027. (…)