Update on US-Canada Tariffs
Bank of Canada Governor Warns: Trade War with U.S. to Have Long-Term Impact on Canadian Economy
Bank of Canada Governor Tiff Macklem issued a warning during a speech in Mississauga, cautioning that the Canadian economy will not quickly recover from a prolonged trade war with the United States. Unlike the swift economic rebound from the pandemic, Macklem noted that a long-standing and broad application of tariffs would prevent a resilient recovery for Canada.
According to the Bank of Canada’s baseline scenario, a continued trade war could lead to a 2.5% reduction in Canada’s GDP in the first year. Macklem highlighted that under President Trump’s executive order dated February 1, Canadian investments are expected to drop by 12%, and exports by 8.5%.
Additionally, Macklem pointed out that reduced export revenues would lower household income, and retaliatory tariffs would increase the prices of many consumer goods. He projected that consumption would decline by over 2% by mid-2027, and Canadian output would decrease by nearly 3% over two years.
To counter the effects of trade friction with the U.S., Macklem suggested implementing proactive policies, including eliminating interprovincial trade barriers, mutually recognizing labor qualifications across jurisdictions, and improving east-west transportation links to enhance productivity and potential output, thus supporting growth without triggering inflation.
Macklem also discussed the upcoming 2026 update of the Bank of Canada’s monetary policy framework. The central bank is currently reviewing the effectiveness of its existing framework, consulting with academics and experts. He emphasized that now is not the time to question the anchoring policy that proved effective in maintaining price stability during the pandemic crisis. Instead, the focus should be on understanding supply shocks, measuring underlying inflation in a world prone to shocks, and how housing inflation distorts measures of core inflation.
Additionally, the National Bank of Canada notes, based on an analysis by the Federal Reserve Bank of San Francisco, that 66% of Canada’s exports to the U.S. are actually intermediate inputs for American production, with only 34% of imported goods from Canada intended for final consumption. This ratio is significantly higher than the 45% average for other U.S. trading partners.
Economists Matthieu Arseneau and Stéfane Marion stated, “Canadian companies are not vying for market share among American consumers, but rather, they are partners to U.S. companies that produce locally.” They also noted that these companies have likely already communicated this point to the U.S. President, and President Trump would benefit from recognizing the special nature of his country’s relationship with Canada.
Pre-Market Overview for This Week
Canadian Stock Market
The Canadian stock market experienced a sharp decline on Friday due to falling commodity prices, disappointing corporate earnings, and escalating global trade tensions, which dampened investor sentiment. The S&P/TSX Composite Index plummeted by 367 points, a 1.4% drop, to close at 25,147 points, marking its largest single-day percentage decline since December 18.
Despite some buying in healthcare and utilities stocks, significant losses in key sectors such as mining, technology, and energy dragged the index lower.
U.S. Stock Market
Last Friday, the U.S. stock market suffered significant losses due to poor economic data and new threats of tariffs. The Dow Jones Industrial Average fell by 1.69% to 43,428.02 points; the S&P 500 declined by 1.71% to 6,013.13 points; and the Nasdaq Composite dropped by 2.20% to 19,524.01 points. Concerns about weakening consumer demand intensified, especially after Walmart released disappointing earnings.
Additionally, President Trump’s announcement of new tariffs on imported lumber, automobiles, semiconductors, and pharmaceuticals further increased market uncertainty. In the S&P 500, the consumer discretionary and technology sectors experienced the largest declines.
A-shares Market
Before the market, China’s stock market adjusted throughout the day with minor declines across the three major indexes. The Shanghai Composite Index fell by 0.18% to 3,373.03 points, the Shenzhen Component Index by 0.08% to 10,983.04 points, and the ChiNext Index by 0.67% to 2,266.24 points. The China A50 futures index decreased by 0.16% to 13,371 points.
Despite overall market volatility, more than 2,700 stocks rose while over 2,400 declined. The total trading volume in the Shanghai and Shenzhen stock markets reached 2.08 trillion yuan, surpassing 1 trillion yuan for the 24th consecutive trading day, although it decreased by 112.1 billion yuan from the previous trading day.
International Foreign Exchange
Last Friday, the U.S. dollar rose against a range of currencies amidst attention to inflation data and trade news. Despite U.S. business activity hitting a 17-month low, the dollar rebounded strongly due to a technical rally and trade concerns.
The euro plummeted due to contractions in business activity in France and Germany. Political polls before the German election showed a stable political landscape. The dollar fell against the Japanese yen and the Swiss franc but rose against other commodity currencies.
Markets expect the Federal Reserve to cut interest rates by 44 basis points this year, particularly against the backdrop of falling consumer confidence and sluggish existing home sales. Meanwhile, the pound fell by 0.3% due to the overall strength of the dollar.
Gold and Oil Prices
On Monday, spot gold traded around $2,938.86, rising for the eighth consecutive week, buoyed by strong safe-haven demand triggered by President Trump’s tariff plans.
U.S. crude oil traded around $70.25 per barrel, falling below the $70 per barrel mark to as low as $69.80. Investors are dealing with the fading Middle East risk premium and uncertainty over a potential peace agreement in Ukraine.
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Upcoming This Week
Monday, February 24
Oneok and Public Storage are scheduled to report earnings.
Spin Master Corp. will report its fourth quarter and full-year earnings.
Tuesday, February 25
The fourth quarter FHFA House Price Index, December S&P Case-Shiller Home Price Index, and February Consumer Confidence Index will be released.
Dallas Fed President Lorie Logan and Richmond Fed President Tom Barkin are scheduled to deliver speeches.
Earnings are expected from Home Depot, Intuit, American Tower, Workday, Axon Enterprise, and Lucid Group.
Canadian banks Scotiabank and BMO Financial Group will announce their earnings.
Wednesday, February 26
January new home sales data will be released in the U.S.
Atlanta Fed President Raphael Bostic is scheduled to speak.
Earnings are anticipated from Nvidia, Salesforce, Lowe’s, TJX Cos., Anheuser-Busch InBev, Synopsys, Snowflake, Stellantis, Agilent Technologies, Ebay, and Paramount Global.
The National Bank of Canada will report earnings.
Thursday, February 27
The U.S. will release initial jobless claims for the week ending February 22, January durable goods orders, the second estimate for Q4 GDP, and January pending home sales.
Cleveland Fed President Beth Hammack and Philadelphia Fed President Patrick Harker will give speeches.
Canadian banks Royal Bank of Canada, TD Bank Group, and CIBC are scheduled to report earnings.
Election Day in Ontario, Canada.
Friday, February 28
The U.S. will release the January Personal Consumption Expenditures Price Index, advance trade balance, wholesale and retail inventories, and the February Chicago Business Barometer.
Chicago Fed President Austan Goolsbee will deliver a speech.
Statistics Canada will release its Q4 2024 GDP report, with a preliminary estimate showing economic growth of 0.2% in December and an annualized growth rate of 1.8% for the quarter.
This week’s economic schedule is keenly watched by investors, particularly for inflation data and earnings reports from major companies. On Wednesday, Nvidia (NVDA) will release its first earnings report since the DeepSeek incident in China, which had significantly impacted its stock price. Investors are also looking forward to updates from Salesforce (CRM), Lowe’s (LOW), Home Depot (HD), and Chrysler’s parent company Stellantis (STLA).
Major Canadian banks are set to release their first-quarter earnings this week, with Scotiabank and BMO Financial Group reporting on Tuesday, National Bank of Canada on Wednesday, and Royal Bank of Canada, TD Bank Group, and CIBC on Thursday.
On Friday, the release of the Personal Consumption Expenditures (PCE) Index will provide Federal Reserve officials with more data on the inflation trajectory for January. Market watchers are also anticipating updates on U.S. Gross Domestic Product (GDP), the housing market, consumer confidence, and the U.S. trade balance.
Published by Vikki Zhao
February 24, 2025 11:00 AM EST. 10 min read
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