Trump Fires Back as Canada Imposes Retaliatory Tariffs

Trump at a White House event on Tuesday (Reuters)
Reuters
By Yuval Rosenberg and Michael Rainey

Happy Tuesday! With Labor Day behind us, we've entered the home stretch for the midterm elections, which are just eight weeks away. President Trump isn't on the ballot this year, but he appears intent on making the election about himself anyway - to the delight of Democrats. As Republicans gather in Dallas tomorrow for an unusual two-day midterm convention, Trump is scheduled to speak on both nights, including closing remarks on Thursday. While the TV ratings for Trump's big event might not be the only measure of its success - lots of fundraising will be going on - the NFL kicks off its new season with games on both nights, so the GOP show will have some stiff competition.

Here's what else is happening.

Trump Ramps Up His Trade War as Canada Hits Back With New Tariffs

President Trump escalated his trade war with Canada on Tuesday, announcing in a social media post that he will try to limit the federal government's purchases of Canadian products.

The announcement came after Canada imposed retaliatory tariffs ranging from 15% to 50% on about $20 billion worth of U.S.-made goods Tuesday, its latest step in the tit-for-tat escalation of the economic conflict between the North American trading partners.

The tariffs affect a wide array of products, ranging from steel, aluminum, forklifts and golf clubs to milk, perfume, cheese and fishing rods.

Canadian Prime Minister Mark Carney said last month that the tariffs were being imposed in response to actions taken by the United States following the last-minute collapse of trade talks between the two nations. In the wake of that collapse on August 21, the United States immediately imposed its own tariffs on roughly $20 billion worth of Canadian products.

In a video posted to social media on Tuesday, Carney said he would prefer to avoid the conflict but needs to take steps to maintain balance in the relationship between the two neighbors.

"I don't believe in escalating the conflict, that's not constructive, but our tariffs are necessary to protect our workers, protect our companies and our communities," he said. "We can't let American goods into Canada tariff-free while they charge our companies to export."

Canada is the United States's second-largest trading partner, trailing only Mexico.

A new threat: As part of his ongoing trade offensive, Trump has kept up a barrage of threats and insults, including renaming Lake Ontario as "Lake America." That effort continued this week, as he laid out a new threat to a major Canadian jet manufacturer just hours before the retaliatory tariffs were scheduled to take effect.

"NO MORE SELLING BOMBARDIER IN THE UNITED STATES!" Trump said on his social media platform Monday. "Over 50% of their revenue comes from the United States ... If they want our Market, they must build here, and stop treating America like a 'piggybank.'"

In response, Bombardier - the company that invented the snowmobile and is now a major manufacturer of business jets - noted that many of the key components in its products, including engines and avionics, are manufactured in the United States. The company's business is deeply entwined with the United States, and its supply chain involves about 2,800 U.S. companies located in 47 states, including major facilities in California, Texas and Indiana.

"The American aerospace industry is a clear winner on trade and exports," the company said in a press release. "Bombardier is a strong contributor to the sector, creating tens of thousands of jobs across the United States."

And another new threat: Trump announced Tuesday afternoon that, in response to what he said was a lack of reciprocity in trade terms, he is ordering the General Services Administration to "take all necessary steps to REMOVE Canadian-origin products from GSA's Multiple Award Schedules unless Canada restores full and fair reciprocity for American Farmers and Companies."

Trump said the move, which would eliminate Canadian-made products from U.S. government contracts, affects $50 billion worth of goods, though it's not clear how much of that total is Canadian.

Saving money? While many economists emphasize the mutual benefits of international trade, Trump has long seen trade as a zero-sum game, and trade deficits as proof that foreigners are "ripping off" the United States. Speaking to reporters in the Oval Office last week, Trump indicated that the United States could "save" billions of dollars by refusing to trade with countries that consistently maintain trade deficits.

"All we have to do to cut our trade deficit with a country is not trade with them," Trump said. "Canada is one. If we don't do any trading with Canada, we just end all trade with Canada. We'd save ourselves $90 billion."

Most economists would strenuously disagree with this assessment, arguing instead that less trade simply means less economic activity or higher prices - or both.

Still, that hasn't prevented Trump from framing trade in strictly nationalist terms. "I don't want Canadian cars, I don't want Canadian parts, I don't want Canadian anything," he said last month on social media. "They've been ripping us off for decades, and it's going to stop."

GOP senators express concerns: Sens. Jerry Moran and Roger Marshall, both Republicans from Kansas, defended Bombardier, a major employer in their state, and said they oppose Trump's threatened ban on jet sales.

"I'm going to fight to keep Bombardier's over 1,200 Kansas jobs," Marshall said Tuesday on social media. "I've already taken that concern inside the Oval Office."

On Sunday, Moran said he had contacted the White House about the issue. "This afternoon, I reached out to the Trump administration to make certain the President is aware of the significant contributions of Bombardier to Kansas and the importance of its presence in Wichita to many Kansas workers at Bombardier and in the Bombardier supply chain," he said on X. "I will continue working to see that Bombardier's manufacturing operations not only remain in Kansas but continue to grow and create American jobs."

Iran War Has Cost Americans Over $100 Billion in Higher Energy Costs

Gas prices are now the highest they have ever been at this time of year, averaging $4.15 a gallon - the first time the national average has topped $4 a gallon on Labor Day. And as Americans pay more at the pump, the higher energy prices resulting from the war with Iran have now cost U.S. households more than $100 billion, according to a cost tracker published online by The Watson School of International and Public Affairs at Brown University.

The total burden to U.S. consumers from higher gasoline and diesel prices since the conflict began at the end of February now stands at $101.1 billion, or about $423 per household due to extra gas costs and $349 per household from diesel costs that have reached a record high of $5.90 a gallon. In all, the cost tracker says U.S. households have seen a $772 hit, on average.

The added cost continues to climb as the conflict drags on and oil prices again approach $100 a barrel - and they could rise even faster if, as Goldman Sachs warned Sunday, global oil prices head toward $120 a barrel or higher.

Goldman Sachs analyst Daan Struyven warned in a research note Sunday that he expects Mideast shipping disruptions to continue into 2027. Goldman's forecast now calls for the price of Brent crude, the global benchmark, to fall to $85 a barrel by December, $5 higher than the previous forecast. For 2027, the bank expects Brent to average $80 a barrel, up from a prior forecast of $75.

Struyven noted that crude oil prices won't necessarily spike higher because oil producers are adapting to the disruption, China's oil importation is sensitive to prices and the amount of crude oil stored in land inventories has declined only modestly, from 9.1 billion barrels before the war to 8.6 billion barrels today.

Still, the risks to the price forecast "remain significantly tilted to the upside on net, especially near-term," Struyven and his team said. Brent crude prices could top $120 a barrel if average Gulf output remains more depressed, or if attacks in the Strait of Hormuz and the Red Sea intensify.

Chart of the Day: A Return to Normal

Jim Reid, global head of macro research at Deutsche Bank, argues that the global bond market sell-off of recent weeks may represent more of a return to normal after a stretch of historically low interest rates rather than a warning sign about unsustainable fiscal policy.

"While the forces pushing yields higher are unlikely to fade anytime soon, the latest increase should be viewed less as a new regime shift, or due to immediate fiscal concerns, and more as a continuation of the long normalisation from the extraordinary conditions of the 2010s," Reid writes in a note to clients Tuesday.

Reid makes the same point in a new op-ed published in the Financial Times: "Had you been on a desert island for a couple of decades, the level of yields today would look perfectly normal at the end of your sabbatical from the world, not at crisis levels."

There are plenty of reasons for bond yields to be rising.

"At Deutsche Bank, our house view has consistently been in recent years that yields would rise due to heavy government issuance, the retreat of quantitative easing programmes of bond buying by central banks and inflation levels that have been persistently higher and more volatile than the pre-pandemic period," Redi notes. "In the US, inflation has now been above the Federal Reserve's 2 per cent target for more than five years."

Reid also points out that global growth has topped most expectations since the Iran war began, with nominal U.S. GDP growth of 6.6% in the second quarter, the highest since 2005, except for the Covid rebound.

"And make no mistake," Reid adds, "fiscal concerns are real and higher borrowing costs potentially worsen debt arithmetic, especially if growth fades. The big shift, though, is that the equilibrium rate for bond yields is higher than markets became accustomed to in the ultra-loose era."

Chart of the Day: A Return to Normal

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