Canada Strikes Back in Trade War, Targets Key US States
Good evening. We miss Dolly Parton already - here's what we're watching on the fiscal front as we wander through her vast catalogue of songs.
Canada Strikes Back in Trade War, Targets Key US States
As promised, Canada responded to President Trump's 50% tariffs on a $20 billion basket of Canadian goods by imposing its own tariffs on roughly $20 billion worth of U.S.-made goods.
Canadian officials said Tuesday that they would start collecting tariffs ranging from 15% to 50% on more than 800 products starting on September 8. The tariffs loosely mirror those imposed by Trump, with the heaviest impact falling on steel and aluminum.
With an eye on the upcoming midterm elections, the tariffs are designed in part to put political pressure on Trump and his Republican party.
"We are picking products that will target states in the U.S.," said Melanie Joly, Canada's industry minister, per CBS News. "We're being wise and strategic to put political pressure, and that's why we think it's the right thing to do right now."
Joly also called on Canadians to buy Canadian goods, to protect jobs while launching a "movement of resistance" against Trump's aggressive acts.
In the United States, the Canadian tariffs will hurt automakers in Michigan, dairy farmers in Wisconsin and lobstermen in Maine - all states that have close political races this fall.
And there could be more problems for American producers ahead. Some economists are skeptical about how effective tariffs can be as a financial lever, but Canada has other cards it can play. U.S. firms could be hurt by an export tax imposed by Canada on key manufacturing inputs such as oil, natural gas, electricity and potash.
"This is a game of cards," Joly said, per The New York Times. "We know we have a lot of good cards in our hand. And we know not to use them right at the start."
Inflation Remained Stubborn in July
The personal consumption expenditures price index rose 0.2% in July on a month-over-month basis, and 3.7% over the previous year, the Bureau of Economic Analysis announced Wednesday. The annual reading held steady from June, and both numbers were a bit higher than expected by economists polled by Dow Jones.
The core PCE price index, which ignores volatile food and fuel prices - and is closely watched by the Federal Reserve as the most telling measure of inflation - also rose 0.2% on a monthly basis, while the annual figure was 3.3%.
"Bottom line: The war in Iran impact is still in effect," wrote Heather Long, chief economist at Navy Federal Credit Union, who provided the chart below. "Inflation didn't get any better in July, according to PCE."
The Wall Street Journal's Matt Grossman noted that inflation remains stubbornly above the Federal Reserve's target rate. "The central bank's 2% inflation target, elusive amid price pressures from the Iran conflict, the AI boom and the Trump administration's tariffs, remains frustratingly out of reach," Grossman wrote.
The data wasn't all bad news, though. The report also shows that incomes rose 0.4% in July, and spending rose 0.2%, both better than expected.
The bottom line: Inflation remains a problem, which means that Federal Reserve officials will likely be more focused on the possibility of raising interest rates than cutting them when they meet in September.
"Given the three shocks-tariffs, war-induced energy prices and AI-related demand for commodities and finished goods-any discussion of rate cuts should be sidelined," said Joseph Brusuelas, chief economist at RSM, adding that "rate hikes are live options for policymakers who are concerned about inflation that has remained well above the 2% target for the past five years."
Fiscal News Roundup
- Canada Imposing Tariffs of Up to 50% on $20 Billion in US Imports - CBS News
- Republicans Were Already Nervous About November. Then Trump Restarted His Trade War - Politico
- Lutnick's Last-Minute Demands Derailed Canada Trade Talks: Reports - The Hill
- ICE Arrests Jumped to Nearly 50,000 in July, the Highest Monthly Total of Trump's Second Term - Associated Press
- Trump Administration Wants Billion-Dollar Businesses to Qualify as 'Small' - New York Times
- States Try New Tactics to Bring Down High Hospital Prices - NPR
- Hegseth's Purge of Top Generals Leaves the Army Rudderless - New York Times
- Army to Spend $2B to Build Nuclear Microreactors at 5 Bases as US Seeks to Ramp up Nuclear Power - Associated Press
- How to Avoid a Social Security Cut? Lawmakers Are Floating Ideas for What to Do - Associated Press
- Fired FEMA Crew Leader Defends Skipping Homes With Trump Campaign Signs - Washington Post
- Wiped Out: US Faces Surging Toilet Paper Prices Amid Trade War With Canada - Guardian
Views and Analysis
- The Fed Chairman Is Heading to Jackson Hole Without a Clear Stance on Inflation - Nick Timiraos, Wall Street Journal
- Bessent's 'Economic D-Day' May Not End the War - or $4 Gas - Scott Waldman and Megan Messerly, Politico
- Wall Street Turns on Scott Bessent - Sam Sutton and Victoria Guida, Politico
- The US Can't Fake Its Way Out of Fiscal Trouble - Bloomberg Editorial Board
- The Drip-Drip US Debt Crisis - Chris Giles, Financial Times
- Seven Ideas to Help the Administration Achieve Fiscal Consolidation - Committee for a Responsible Federal Budget
- In the US-Canada Trade Spat, Tariffs Are Not the Only Problem - Scott Lincicome, Bloomberg
- The Ludicrous Argument Behind Trump's Tariffs - New York Times Editorial Board
- How Trump's Crazed Fury at Canada Is Already Backfiring Badly for Him - Greg Sargent, New Republic
- How Trump Is Destroying Detroit - Robert Kuttner, American Prospect
- This Is How the AI Debt Binge Sinks the Economy - Robin Wigglesworth, New York Times