Daily commentary & market insights, February 4, 2025

The threat of an impending trade war eases, at least for 30 days.

Following discussions between Trump and Trudeau yesterday, the U.S. president has agreed to delay tariffs for at least 30 days while our countries work on a finalized border security agreement. Several Canadian provinces had prepared for tariff implementation today, having removed American liquor, beer, and wine from their shelves and banned U.S. companies from provincial contracts. Premier Ford canceled Ontario’s contract with Elon Musk’s Starlink, which was set to provide internet to 15,000 eligible homes and businesses. Notably, Loblaw’s CEO had pledged to minimize the impact of the tariffs on consumers by seeking Mexican and other international alternatives to U.S. imports.

On Saturday, Trump officially signed off on a 25% tariff on goods from Mexico and non-energy imports from Canada, with a 10% tariff on Canadian energy. These tariffs were scheduled to take effect today, and Canada had prepared $30 billion in retaliatory tariffs on American products. However, earlier in the day yesterday, Trump and Mexican President Claudia Sheinbaum reached a border security agreement that delayed the tariffs for 30 days. By the afternoon, Trudeau also negotiated a similar deal with the U.S., which included a $1.3 billion security package for Canada’s southern border, featuring helicopter patrols, a crime task force, and the appointment of a “fentanyl czar.”

Political and business leaders remain cautious about Trump’s unpredictability. According to BMO’s chief economist, the tariffs would likely push Canada into a recession and trigger a significant rise in unemployment. This could lead the Bank of Canada to cut rates more aggressively than previously anticipated, potentially lowering the benchmark rate to as low as 1.5% by October.

China, which faced a lesser 10% punitive duty, was also preparing retaliatory measures. China plans to impose duties on American farm equipment, coal, oil, and other products. Additionally, China reports launching antitrust investigations into major U.S. companies, such as Alphabet’s Google and Intel.

The market opened Monday with a jolt as the U.S. dollar surged to a 22-year high against the Canadian dollar, nearing the 1.48 mark, last seen in March 2003. However, as tariff concerns eased throughout the day, the USD dropped back. By today, the U.S. dollar had lost 0.68% from yesterday’s close.

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