U.S. President Donald Trump’s trade war seems to have cooled off after a period of rising tensions with China — but economists remain cautiously optimistic about the future of the Canadian and global economies.
On Monday, U.S. and Chinese officials announced they had reached a deal to mutually lower tariffs by 115 percentage points for 90 days.
That brings the U.S. tariff rate on Chinese products to 30 per cent from 145 per cent, while China lowered its tariff rate on American goods to 10 per cent from 125 per cent.
“Yesterday, we achieved a total reset with China after productive talks in Geneva,” Trump said in a press conference Monday morning. “The talks in Geneva were very friendly, the relationship is very good. We are not looking to hurt China.”
Stocks rallied following the announcement. The S&P/TSX composite index rose 331.62 points in early trading. In the U.S., the Dow Jones industrial average was up 967.88 points.
“Although the 90-day ‘truce’ between the world’s two biggest economies is unleashing a global stock market rally today, there is still the hard economic data and the key now is to restore business and consumer confidence,” BMO economist Priscilla Thiagamoorthy wrote in a note to clients.
Thiagamoorthy pointed to April labour market statistics released last Friday, showing the Canadian economy had added just 7,400 jobs, while the unemployment rate rose to 6.9 per cent — the highest since November.
It was the first set of jobs data to clearly show the impacts of Trump’s trade war with Canada. The manufacturing industry led job losses last month, shedding 31,000 positions, with most of the impact felt in Ontario. “Not good,” wrote Thiagamoorthy.
However, RBC economist Claire Fan believes the worst of the trade war might be behind us.
“You have two of the largest economies in the world de-escalating this very punitive trade war on each other. So that means global (economic) growth is going to, if anything, look a lot better this year,” she said in an interview. “For Canada, as an open trading economy, that’s good news.”
Still, Fan expects the Canadian unemployment rate to keep rising to a 7.1 per cent peak (from 6.9 per cent currently) as companies continue to freeze hiring and shed jobs amid tariff uncertainty.
Scotiabank economist Derek Holt cautioned that other levies on China are still in effect, including sector-specific U.S. tariffs on Chinese electric vehicles, solar panels, semiconductors, and steel and aluminum.
Chinese policies such as restrictions on critical minerals, and measures targeting individual American companies, also remain in place, he added.
“This is not a deal, it’s just a de-escalation of tariff lunacy and we’ve seen temporary deals fall apart in the past,” Holt wrote in a note to clients.
“Celebrate for now, but the volatile history of relations between these two countries combined with Trump’s extremely erratic ways will leave markets on tenterhooks into the mid-August time frame,” Holt continued, “by which point either some heroic attempt at a grand deal is miraculously pulled off in record time, or we’re back at it all (over) again.”
With files from Star wires.
