Shots fired! The ‘Great Trade War’ is back

And so The Great Trade War™ is on. You’ve probably already heard endless hot takes from folks dressed in shirts with collars more rigid than your uncle Rob on the dance floor, so let’s keep this one short (and our collars in an effortless kind of linen ruffle).

Here’s what you need to know.

Trump’s tariffs on Canada, Mexico, and China kicked in yesterday (Tuesday), including:

• A 25% levy on Canadian goods (10% for energy) 
• A 25% levy on Mexican goods, and 
• Another 20% (two cumulative 10% announcements) on China.

Why? As we explored when the US president first announced these tariffs last month, the very real scourge of fentanyl also presents Trump with a legal basis to hit US trading partners with tariffs. Beyond the legalities, he’s also spoken repeatedly about the role he sees for tariffs in repairing the US budget and reversing US industrial decline.

And while he never spelt out what exactly Canada and Mexico had to do, he tapped a 30-day pause button when the two neighbours signalled tougher border commitments. But that 30-day clock has now run out, and Trump’s tariffs are now in force.

And so now, the top three US trade partners are responding just as they pledged:

🇨🇦 Ottawa

Outgoing leader Justin Trudeau, whose approval ratings have rebounded as he leads Canada’s response, has described the situation in words we’re stunned to be typing out: “Perhaps what [Trump] wants is to see a total collapse of the Canadian economy because that will make it easier to annex us” (a reference to Trump’s various ‘51st state’ comments).

That’s startling because this is Canada, which is…

• a) A long-time US ally who (eg) lost the third most troops per-capita (after Denmark and Estonia) fighting alongside Americans in Afghanistan after 9/11, and
• b) Whatever the border issues, the numbers are tiny compared to down south.

So Trudeau announced immediate 25% retaliatory tariffs on CA$30B (US$21B) worth of US goods, while another CA$125B (US$86B) will hit in 21 days if the US tariffs are still in place. This kind of scalable response is common in disputes — presenting an offramp while preserving space to ratchet up the pain as needed.

Meanwhile Doug Ford, freshly re-elected as the leader of Canada’s key Ontario province, is ripping up his $100M deal with Elon Musk’s Starlink, banning US firms from procurement contracts, and warning that 1.5 million Americans relying on Ontario electricity will face a 25% tariff if this trade war persists. Trump’s commerce secretary (Lutnick) apparently put in a spicy phone call to push back, but Ford ain’t budging.

🇨🇳 Beijing 

We previously described China’s sense of relief that it’s only copping another 20% in tariffs rather than the 60% Trump threatened on the campaign trail.

And you can kinda see that relief in Beijing’s actions, imposing just 10-15% tariffs on US farm products including chicken, beef, pork and soybeans. The idea is to (again) nudge Trump’s base hard enough for it to nudge Trump, but not enough to wipe them out.

China’s words, on the other hand, really caught our eye: “Intimidation does not scare us. Bullying does not work on us. […] If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.” Bluster or not, that’s new.

🇲🇽 Mexico City

Meanwhile President Claudia Sheinbaum, whose country has the biggest dependence on exports to the US, is still keeping her cards close for now — rather than announce her response yesterday as expected, she’s now unveiling it at a rally on Sunday instead.

A bit of political choreography to solidify support at home? A delay to give her team more time to adjust Mexico’s countermeasures and/or explore offramps with the White House? Probably both. 

Soooo, what’s next? 

Commerce Secretary Lutnick has flagged Trump could roll back tariffs on Mexico and Canada as early as tomorrow. So maybe we’ll end up with another ceasefire via an update to Trump 1.0’s own US-Mexico-Canada trade pact (USMCA). But Lutnick is also the guy who hinted Trump’s tariffs this week might’ve been less than 25%, so it’s hard to know if these are fake-outs or if he’s out of the loop (or if there is a loop).

Meanwhile, Trump himself has tweeted he’ll instead simply ratchet uphis tariffs in response to Canada’s own retaliation.

And while everyone guesses whether this is all bluster, another negotiation tactic, or a casual re-ordering of our modern economy, markets are doing some talking of their own: stocks have plunged almost everywhere, with Ford’s CEO (for example) already warning these tariffs will “blow a hole” in the US auto industry given its integration with suppliers across both Canada and Mexico — and speaking of the neighbours, they now stand to face major destabilising downturns given their own dependence on the US market.

Oh, and even before Trump’s tariffs kicked in, the Atlanta Fed suggested the US economy could now already be contracting (though there’s a fierce and nerdy debate). 

INTRIGUE’S TAKE

An executive at America’s biggest bank (JP Morgan) had a good line on tariffs earlier this week: “The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they’re fine.”

So… why do all this? Intriguers should be aware of the ‘Mar-a-Lago Accord’ theory now doing the rounds, particularly on Wall Street. It’s a term some are using to describe a speculated Trump strategy to reorder the international financial system in America’s favour. If you really want to nerd out, it’s based on a paper by top Trump advisor Stephen Miran, which in turn reflects some of the thinking laid out by an influential (if often impenetrable) markets guru known as Zoltan Pozsar.

At risk of casually summarising complex and controversial ideas in a single line, the idea involves strong-arming US trade partners into helping a) devalue the US dollar and b) reduce debt, deficits, and borrowing costs, all in hopes of c) putting the US economy on a more sustainable long-term footing.

Leaving aside how this would even work, there’s every chance this kind of medicine — dunking on allies while flirting with recession — could end up worse than the disease.

Also worth noting:

• President Trump has threatened to impose similar tariffs on EU imports.
• There are reports he’s also exploring an easing of sanctions on Russia.