If there is a U.S. recession this year, with knock-on effects in Canada, it will have been caused by one man.
That would be unusual, historic even.
The pandemic recession was caused by a globally transmitted virus.
The Great Recession of 2008-09 resulted from an epic collapse of the U.S. housing market.
By contrast, the current economic crisis in North America was caused by one person, Donald Trump, who returned to the U.S. presidency Jan. 20.
Trump inherited a healthy economy with strong GDP growth. But it has been evident since mid-February that Trump’s tariff policy is weakening the U.S. economy.
U.S. economic growth has slowed, job growth is slumping, and delinquencies in auto payments and credit cards have reached levels not seen since the Great Recession.
The intent of Trump’s tariff war is to force America’s foreign suppliers to relocate their operations to the U.S., or to kill rivals to U.S. industry outright.
For instance, Trump said last week that his planned tariffs on Canadian cars will “permanently shut down the automobile manufacturing business in Canada.”
Trump’s erratic tariff directives and mass firings of government workers have created debilitating uncertainty among American consumers, businesses and investors.
Fears of a tariffs-induced surge in inflation and unemployment have erased more than $4 trillion (U.S.) from the value of American stocks since their peak in February.
Investment bank J.P. Morgan said last week that there is a 40 per cent chance of a U.S. recession this year.
The recession likelihood rises as Trump widens his trade war to more countries and targeted products, like his threatened 200 per cent tariff last week on European wines and other alcohol products.
That could effectively kill a European wine industry reliant on U.S. exports, one of its top spokespeople said last week.
“If we continue down this road of what would be more disruptive, business-unfriendly policies, I think the risks on the recession front would go up,” said Bruce Kasman, chief economist at J.P. Morgan.
And Trump has said he will go on imposing and raising tariffs when the mood strikes him. “Tariffs are going to be the greatest thing we’ve ever done as a country,” Trump said March 9.
Trump’s commerce secretary, Howard Lutnick, said last week that while the tariffs will make foreign goods more expensive, “American products will get cheaper.”
That’s nonsense, of course.
U.S. manufacturers and farmers that use imported Canadian potash, aluminum, oil and steel targeted by Trump’s tariffs will have to raise their prices.
Trump’s global tariffs on steel and aluminum imports will increase the price of thousands of U.S.-made products, including oilpatch drill bits, airplane fuselages, aluminum beer cans and baseball bats, and stainless-steel cookware.
America’s steelmaking oligopoly loves Trump’s tariffs on steel imports. It has already raised prices in the absence of robust competition.
But the far larger U.S. retail sector, heavily reliant on the sale of goods imported from China, Mexico, Germany, Spain and other countries targeted by Trump’s tariffs, is suffering lower sales even before the tariffs go into full effect.
Profit margins in retailing are too narrow for merchants to absorb the higher costs, which they must pass on to customers. The resulting swoon in consumer spending is putting hundreds of thousands of U.S. retail jobs at risk.
Larry Summers, U.S. treasury secretary in the Clinton administration, says the tariffs on Canadian steel and aluminum “are the worst trade policy yet. Increasing the price of key inputs for the U.S. manufacturing industries — who employ 10 million people — is what a U.S. adversary would do,” Summers posted to X on March 11.
“It’s a self-inflicted wound on the U.S. economy,” Summers wrote.
Canada will suffer from Trump’s tariffs and collateral damage from a slowing U.S. economy that could dip into recession.
“In the pandemic, we had a steep recession followed by a rapid recovery as the economy reopened,” Tiff Macklem, governor of the Bank of Canada (BoC), told an Oakville audience last month.
“This time, if tariffs are long-lasting and broad-based, there won’t be a bounceback,” Macklem warned.
Algoma Steel, based in Sault Ste. Marie, warns that Trump’s steel tariffs have already pushed steel prices below production costs for much of the Canadian industry. Algoma CEO Michael Garcia is counting on federal and provincial support for the industry.
Alcoa, the U.S. aluminum giant, has warned that an estimated 100,000 direct and indirect jobs in the industry are at stake from Trump’s tariffs on aluminum imports. “This is bad for the aluminum industry in the U.S.,” said CEO William Oplinger, who is lobbying the White House to remove the tariffs. “This is bad for American workers.”
“President Trump wanted a trade war with the world, and Americans are getting it, good and hard,” said the Wall Street Journal in an editorial last week. The paper has condemned Trump’s tariff war as “one of the dumbest in history.”
Much as Canadians would like to commiserate with their American friends, we’re feeling the pain, too. And we all know where it’s coming from.
