Update on US-Canada Tariffs
Focus is on the U.S. imposing a 25% tariff on all non-American made cars, escalating the trade war and placing Canada in a difficult position
Last week, U.S. President Donald Trump announced these tariffs, which are just a precursor to additional tariff measures he plans to unveil on Wednesday. Canadian Prime Minister Mark Carney has labeled the tariffs a “direct attack” on Canada, although he held back on immediate retaliation. After what was described as a “productive talk” on Friday, both parties agreed to resume trade negotiations after the Canadian election.
However, these auto tariffs are set to take effect on April 2nd. Despite potentially lighter impacts on Canada, the tariffs will significantly affect Ontario, where 100,000 jobs are related to the automotive industry.
Avery Shenfeld, Chief Economist at CIBC Capital Markets, stated that Canadian policymakers need to contemplate the most effective responses rather than those that are merely satisfying in the moment. He argued that imposing a reciprocal 25% tariff on American-made auto parts would be counterproductive as it would raise the cost of Canadian-made vehicles.
Shenfeld proposed an alternative or supplementary strategy whereby Canadians could penalize U.S. exports through their purchasing choices at supermarkets, shopping centers, car dealerships, and travel agencies. He suggested that such consumer actions, potentially supported by publicly funded marketing and targeted advertising, could exert significant economic pressure on the U.S. without giving the Trump administration a basis for retaliation.
Shenfeld emphasized that the choice not to purchase is a fundamental right in any free society and that if joined by Mexico, Europe, and Asian countries, these measures could exert more pressure on the U.S. economy and its political leaders than tariffs alone.
Local Focus in Canada
Canadian Provincial Budget Deficits Double to CAD 32 Billion
According to estimates from the National Bank of Canada, seven out of Canada’s ten provinces have published budgets that cumulatively amount to a fiscal deficit of CAD 32 billion, doubling the forecast from a year ago.
Warren Lovely, an economist at National Bank, noted, “Compared to previous budget guidance, there has been a significant shift in tone with tariff risks now at the forefront.” Provinces are currently focusing on the downside risks associated with tariffs, decelerating economic growth, and falling oil prices. The fiscal deficit for the current year is expected to rise to about CAD 40 billion, which would mark the highest deficit on record for these provinces.
Ontario’s budget is set to be released after the legislature resumes on April 14, while the federal budget has been postponed until after the elections on April 28.
Pre-Market Overview for This Week
Canadian Stock Market
Despite ongoing uncertainties surrounding U.S. tariffs, the Canadian stock market managed a rebound on the last trading day of March. A decline in bond yields and a rise in crude oil and gold prices helped boost investor sentiment. The S&P/TSX Composite Index rose by 158 points, or 0.6%, closing at 24,918 on Monday, reclaiming much of the losses from the previous week.
Most key sectors, except for technology, performed well during this session, with the market rally primarily driven by strong gains in consumer, industrial, and financial stocks. However, the index still recorded a monthly decline of 1.9%, marking its second consecutive month of losses.
U.S. Stock Market
In the first quarter of 2025, the U.S. S&P 500 and Nasdaq indices experienced their worst quarterly performance since 2022. This decline was primarily driven by concerns over new tariff policies introduced by the Trump administration, which have sparked fears of a global trade war and potential negative impacts on economic growth and inflation. The S&P 500 fell by 4.6%, while the Nasdaq plummeted by 10.5%, and the Dow Jones Industrial Average also dropped by 1.3%.
With more detailed tariff plans expected to be announced soon, market uncertainty about the future has increased. This week, the focus will be on economic data such as the ISM Business Activity Survey and the critical non-farm payroll report, as well as speeches from Federal Reserve officials. These events are anticipated to provide further insights into the economic and policy direction.
Currency Markets
In the first quarter of 2025, the US dollar experienced significant weakness against the Japanese yen and the euro, recording its largest quarterly drop since July 2024, despite a slight strengthening on Monday. This decline was largely due to the uncertainty surrounding the US tariff policy, as traders adopted a wait-and-see approach in anticipation of new reciprocal tariffs by the Trump administration, which heightened concerns about a potential global trade war harming economic growth and exacerbating inflation.
Safe-haven assets like the Japanese yen and gold initially rose in early trading, with gold prices later hitting historic highs as investors moved away from riskier assets. Analysts indicate that market concerns are primarily focused on the outlook for the US economy and the potential impacts of tariffs, given that the details of the tariff plan are still pending and the reactions from other countries remain unclear.
The White House is set to announce a new round of reciprocal tariffs on Wednesday, causing tension in the markets. Despite a modest rise in the US Dollar Index to 104.2 on Monday, it ended the month down 3.1%, marking its largest monthly decline since November 2022. Other major currencies, including the British pound and the Canadian dollar, also experienced declines.
Gold and Oil Prices
Gold extended its robust rally on Monday, breaking through $3,120 per ounce to set a new all-time high, as uncertainty surrounding tariffs boosted demand for safe-haven assets, leading to the strongest quarterly performance for gold since 1986. Spot gold rose 1% to $3,116.94 per ounce, reaching a peak of $3,128.06 during the session. U.S. gold futures also climbed 1.2%, closing at $3,150.30.
In other precious metals, spot silver dropped 0.6% to $33.90 per ounce, while platinum gained 0.5% to $996.20 per ounce, and palladium increased 1.2% to $982.94 per ounce. All three metals recorded monthly gains.
Oil prices surged about 3.5% to a five-week high on Monday due to concerns that supplies might decrease if U.S. President Donald Trump follows through with threats to impose more tariffs on Russia and potentially target Iran. Brent crude futures rose 1.5%, closing at $74.74 per barrel, while U.S. crude advanced 3.1%, closing at $71.48 per barrel. These are the highest closing prices for Brent since February 24 and for U.S. crude since February 20. The premium of Brent over U.S. crude narrowed to $3.02 per barrel, the lowest since July 2024.
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Upcoming This Week
Monday, March 31
Chicago Business Barometer for March is due.
Loar Holdings (LOAR) and PVH Corp. are set to release their earnings reports.
Tuesday, April 1
S&P Manufacturing PMI for March will be announced.
Construction spending data for February will be released.
ISM Manufacturing PMI for March is scheduled.
Job openings for February will be reported.
Ncino (NCNO) is expected to publish its earnings.
Wednesday, April 2
ADP Employment Report for March will be available.
Factory orders for February will be disclosed.
RH, UniFirst (UNF), and BlackBerry (BB) will announce their earnings.
Thursday, April 3
Canadian International Merchandise Trade data for February will be released.
A panel discussion on Canada-U.S. relations hosted by the Calgary Chamber of Commerce will take place.
Initial jobless claims for the week ending March 29 will be reported.
U.S. trade deficit for February will be disclosed.
S&P U.S. Services PMI for March will be updated.
ISM Services PMI for March is also due.
Dollarama Inc., Conagra Brands, Acuity (AYI), Lamb Weston, and Guess are scheduled to report their earnings.
Friday, April 4
Canadian Employment Report for March will be released.
U.S. Employment Report for March will be available.
Federal Reserve Chairman Jerome Powell is scheduled to speak in Arlington, Virginia.
This week’s most anticipated earnings reports include: PVH Corp #PVH, Conagra Brands #CAG, Gorilla Technology #GRRR, Open Lending #LPRO, Red Cat #RCAT, BlackBerry #BB, RH #RH, Microvast #MVST, Nano-X Imaging #NNOX, and Rekor Systems #REKR.
Published by Vikki Zhao
March 31, 2025 11:00 AM EST. 10 min read
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