Houston, We Have a Problem

This morning, the Canadian government reported that our unemployment rate jumped to 6.8%, the highest in almost eight years. Earlier in the week, the former Governor of the Bank of Canada, Stephen Poloz, said in a speech that he believes we are in a recession, either technically or real. Meanwhile, our Deputy Finance Minister, Chrystia Freeland, believes that we are in a “Vibecession”—people feel their financial situation is worse than the actual economy. The government also reported that Canada’s GDP per capita sank for the sixth consecutive quarter—fantastic! Either the statistics are wrong, or Freeland is out of touch with the country and Canadian taxpayers. Maybe giving people a GST break for two months is really going to help! I have an idea: reduce government spending, eliminate carbon taxes, reduce regulations that cost consumers money, and increase competition through tax legislation that promotes economic growth and allows us to compete. Then the Vibecession will disappear!

On the U.S. side of the continent, Donald Trump, aka the Wizard of Oz, is assembling his team and formulating policies that ensure the U.S. is all powerful and that the U.S. dollar continues to be the strongest currency in the world. In his attempt to recreate a world where all goods are manufactured in the U.S, Trump is looking to utilize tariffs to achieve this goal. Will this work? What are the consequences of this policy for their trading partners? Capital Economics believes that if a 25% tariff is imposed on Mexico and Canada, the net effect will be a drawdown in GDP in both countries by 1.6% and 2.6%, respectively. Canada’s second-quarter GDP growth this year was only 2.1%, meaning that we could see negative GDP growth in 2025. So much for a Vibecession.

But what about the effect on the U.S. economy if all the tariffs are imposed? The combined imports into the U.S. from Canada and Mexico total nearly $1 trillion US dollars annually. By imposing a 25% tariff, this would add another $250 billion in tax that must be paid by either the importing company or the end user/purchaser of the product. The Wizard of Oz is also threatening to impose a 10% higher tariff on China and 100% on the BRIC countries. The new tax load alone from China would exceed $50 billion USD, and if the BRIC tariff does get implemented, that would add another $5 to $6 billion USD, for a total of over $300 billion USD in new taxes on the US consumer. Trump says he wants the BRICs to align with the U.S., that Canada needs to protect its borders better and stop the inflow of fentanyl, and that Mexico needs to stop illegal aliens from crossing the border, etc. It appears that the average American believes that the countries exporting those goods are paying the tax, rather than themselves. Meanwhile, companies like Walmart and Columbia Sportswear are already planning to raise prices for consumers. Past studies have also shown that manufacturing does not shift because of tariffs, another Oz-like fallacy meant to create a distraction from the actual truth—just like how Mexico paid for the partially completed border wall!

What will be the result of all the tariffs? The best-case scenario would be that they cause countries like Canada to increase security along the border and perhaps some manufacturing returns to the U.S. The worst-case scenario is that the tariffs weaken the economies of friendly countries like Canada, increase inflation in the U.S., lower competition, heighten tension among trading partners, and pushes the U.S. into a recession in late 2025 or early 2026. Alternatively, Elon Musk, who has become Trump’s right-hand man, could cut programs and slash jobs at the federal level to reduce spending enough to offset the inflation from the new tax that will be passed on to the American consumer—highly doubtful. If the tariffs are implemented, then prepare for higher interest rates in the U.S., a stronger U.S. dollar, a weaker Canadian dollar, lower interest rates in Canada, and a global recession in 2026, which the Wizard of Oz will blame on some outside force or group.