Trade & Tariff Update #41: Canadian Tariffs Take Effect

Canada Delivers Promised Tariffs as Trade War Continues

Tensions continue in the ongoing dispute between the Trump Administration and the Canadian government following the collapse of the trade deal two weeks ago.  Republican members facing a hostile electorate are feeling the heat.  Cost of living remains a top concern of voters and tariffs remain unpopular with both Democrats and Republicans.  GOP members summoned United States Trade Representative (USTR) Jameison Greer to discuss the devolving situation. Following the meeting, Republicans blamed Canada for the trade war and defended the Administration’s actions.

As Canadian Prime Minister Mark Carney promised two weeks ago, Canada’s retaliatory tariffs took effect Tuesday, September 8 at 12:01 a.m. EST, matching the duties imposed by the Trump Administration. The tariffs range from 15% to 50%, with the highest duties on products including milk, perfume, golf clubs, steel and aluminum, jackets and t-shirts. Cheese, rugs and some household appliances face 25% tariffs, and forklifts and other industrial products will be subject to 15% tariffs. Although some American seafood originally was slated for 25% tariffs, Canada exempted these products following backlash from the lobster industry. According to Prime Minister Carney, the tariffs were unavoidable because the United States was seeking “dependency, not a true economic partnership” from Canada. President Trump has warned that the United States will respond forcefully to Canadian tariffs, and on Monday he threatened to bar the import of Canadian aerospace company Bombardier’s aircraft and impose additional duties unless the company shifted production of its products to the United States. On Tuesday night, President Trump issued executive orders banning imports of some Canadian alcohol, motorcycles, molasses and other products starting September 29.

Senate Majority Leader Chuck Schumer indicated he would introduce legislation to block the tariffs on Canada; however, at this time, prospects for passage or overcoming a veto are slim. The Section 301 and 338 tariffs are seen as more durable, and in fact Senator Ruben Gallego (D-AZ) commented last week that the current Trump tariffs may be difficult to remove.  Democratic California Governor Gavin Newsom also is attributed with stating that he could not guarantee complete removal of the tariffs.

 Brazil Trade Talks to Resume

While the situation with Canada shows no sign of improvement, relations with Brazil appear to be improving.  Last Monday following the Administration’s decision to allow beef imports, the USTR and Brazilian officials spoke virtually to discuss Section 301 tariffs, and agreed to resume trade discussions at a later date.

New Economic Data Could Cut Both Ways

The Administration likely is buoyed by last week’s report reflecting larger than expected employment numbers and domestic manufacturing growth. The United States economy added 162,000 jobs in August and the unemployment rate held steady at 4.1%. Economists had forecast the economy to add 55,000 jobs and the unemployment rate to tick up to 4.2% from 4.1% in July.

Revisions eliminated the previous month’s reported job loss. The July estimate was revised up by 44,000, from a loss of 23,000 to a gain of 21,000. The June gain was revised up by 11,000 to 31,000. After these revisions, employment in June and July combined is 55,000 higher than previously reported.

Job openings at U.S. factories rose in July to the highest level since January 2023, boosted by a surge in durable goods manufacturers looking for workers. Available positions in manufacturing rose to 580,000 from 501,000 in June, data from the Labor Department’s Job Openings and Labor Turnover Survey showed Tuesday. A year ago, manufacturers were looking to fill 428,000 positions. Vacancies in durable goods manufacturing climbed to 429,000, up from 353,000 in June and 255,000 a year ago.

The figures suggest surging demand for U.S. manufactured goods. Last week, the Commerce Department said durable goods orders at U.S. factories rose 1.1%, more than twice what was expected. Reports from the Federal Reserve banks of Kansas City, Dallas, New York, and Philadelphia have recently indicated strong growth in the manufacturing sector.

U.S. manufacturing productivity was substantially stronger in the second quarter than previously estimated, with the largest upward revision coming in durable-goods industries, the Labor Department reported Thursday.

Manufacturing labor productivity rose at a 2.4% annualized rate from April through June, the Bureau of Labor Statistics said, up from its preliminary estimate of 1.9%. The agency also revised first-quarter manufacturing productivity higher, to 2.2%from 1.9%.

These figures represent a double-edged sword for the Administration.  While they provide confidence that the economic agenda is working, the employment numbers also could give the Federal Reserve cover to raise interest rates. Moreover, so far any economic performance has not translated into voter support.