President Trump plans to impose 25% tariffs on all US steel and aluminum imports. The market’s reaction has been muted so far, as US equity markets have opened higher, and the Canadian dollar is modestly lower, even with the TSX composite opening higher. The tariff threats have drawn strong reactions from major trading partners, however:
- The European Union warned that such measures would be “unlawful and economically counterproductive.”
- In Asia, South Korean steel exporters have already been seeking other markets. South Korea’s steel shipments are currently about 70% of the annual average for 2015-2017, before the first Trump trade blitz, though by value the US remains the largest destination for its steel. Trump didn’t clarify whether imports of metal from China would face double tariffs, given he has already imposed a 10% tariff on Chinese goods. In response, Beijing last week announced retaliatory measures that were set to take effect on Monday. Those were targeting only imported goods from the US valued at $14 billion in 2024.
- In Canada, steel and aluminum collectively form 5.8% of exports to the US, including 1.8% in iron and steel, 1.4% in articles of iron and steel, and 2.7% in alumina and aluminum products. Canadian imports of US iron and steel and aluminum equal about 4.6% of all imports from the US.
On the flip side, the US depends on net imports for over 80% of its aluminum needs and specific steel grades remain crucial for aerospace, auto manufacturing, and energy. Imposing fresh duties unsettles automotive and appliance sectors, as higher input costs often rub off on final prices. The move echoes the tariffs President Trump introduced in 2018 during his first term as he aimed to reboot US output, though several countries were ultimately exempted. In all, the broader impact could extend beyond metals, but uncertainty remains over the final scope and duration of these measures.
Canada is the largest supplier of steel and aluminum to the US
Restrictive trade policies are unlikely to see any major winners, leading us to believe that cooler heads may eventually prevail. However, market volatility could remain and perhaps rise until a resolution is reached, warranting portfolio diversification and a high-quality bias, which our clients have.
This won’t be the last time we discuss this economic news, and that’s a promise. Have a great week ahead.
-Ross Vender
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Canada’s consumer price index (CPI) inflation rate decelerated in December, helped by the temporary GST/HST break on certain goods introduced on December 14, 2024. The markets reacted by modestly increasing the odds of a 25 bps policy rate cut from the Bank of Canada (BoC) at the meeting slated for the end of this month.
Of course, Canada faces considerable uncertainty from potential U.S. tariffs, which could alter the monetary policy path. According to estimates from our colleagues at Scotiabank Economics, U.S. tariffs without Canadian retaliation would likely weigh on Canadian GDP, exert downward pressure on inflation, and cause the BoC to ease monetary policy settings further. Conversely, retaliation on Canada’s part could prove inflationary and cause the BoC to tighten policy settings to comply with its price stability mandate. The impact of tariffs, higher inflation, and a higher policy rate could result in a larger hit to Canadian GDP than the no retaliation scenario.
While Canada managed to dodge U.S. tariffs on inauguration day, the 47th President floated the idea of implementing tariffs on February 1. At this time, it is uncertain how, when, and if Trump will go ahead with his plans. Even if tariffs are imposed, the level of aggression and potential exclusions for certain goods remain unknown.
We discuss the key takeaways from today’s StatsCan report below:
- Headline CPI inflation rose 1.8% from a year ago, below the median consensus estimate and November’s reading, both of which were at 1.9%.
- Excluding the items impacted by the tax break (about 10% of the CPI basket), headline CPI inflation would have accelerated to 2.3%.
- The average of the BoC’s preferred inflation measures, trim and median CPI inflation, rose 2.5% year-over-year, in line with expectations and slightly below November’s average of 2.6%. These measures exclude the direct effects of changes to GST/HST.
- On a month-over-month basis, headline CPI inflation declined by 0.4% (in line with expectations) after a flat reading in November.
- At the time of this writing, the odds of a 25 bps policy rate cut at the BoC’s January 29 meeting are sitting at ~84%.
We’ll see what tomorrow brings.
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Having a robust investment strategy is all well and good. But making money in the stock market can only take us – you and me – so far. There’s a great deal more to being financially successful than that. The expression Total Wealth Management, though widely used these days, is typically expressed as a slogan. I disagree with that application. I consider it to be an imperative.
The way we practice it, Total Wealth Management is more than an imperative – it is a disciplined and rigorous process.