4 things that would be ‘kryptonite’ to Trump’s tariff threats

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Donald Trump doubled down on threats to impose punishing tariffs on Canada and Mexico Monday, saying the 25-per-cent levies were “on schedule” to go ahead March 4.

The prospect is a daunting one for Canada with economists warning that a protracted trade war could throw the economy into recession.

Yet as unstoppable as Trump seems these days, even he has his “kryptonite,” points out Benjamin Tal, deputy chief economist at CIBC World Markets Inc.

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One of his biggest vulnerabilities is the stock market, an indicator Trump has long used to measure success. Any negative reaction here might cause the president to reconsider his actions.

U.S. stocks swooned on Feb. 3, the original deadline for the tariffs, only to recover when Trump announced the month-long reprieve.

“It’s not a surprise that Canada and Mexico were granted 30-day extensions on the 25 per cent tariff shortly after the stock market reacted negatively to the news,” said Tal in a note last week.

The stock market has performed well since then, not because investors believe tariffs are good for the U.S. economy, said Tal, but because they believe the president won’t enact measures that will damage market sentiment.

Gas prices are another vulnerability. Trump with his “drill, baby, drill” mantra has made it clear that one of his priorities is lowering fuel costs for Americans.

With no easy substitute for oil coming from Canada, the 10 per cent tariff Trump threatens to put on Canadian crude would immediately raise prices at the pump, said Tal.

“We doubt that even a 10 per cent tariff on energy will be imposed,” he said.

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Oddly enough, Trump renewed his push on Monday to get the Keystone XL pipeline built “NOW!” The long-abandoned pipeline was meant to carry oil from Canada’s oilsands to Nebraska, a source the president has recently said America could do without.

Inflation is another cause Trump championed during the election. Yet if he wants to get prices down, which have proved sticky of late, imposing tariffs on imported goods isn’t the way to do it.

The Federal Reserve itself pointed this out at its January meeting, with members concerned that Trump’s policies might “hinder the disinflation process.”

“Business contacts in a number of districts had indicated that firms would attempt to pass on to consumers higher input costs arising from potential tariffs,” the minutes read.

A surge in inflation could lead the Fed to hike rates just as Trump has been pushing the central bank to lower them.

“A potential clash between the White House and the Fed is the last thing the market would like to see,” said Tal.

Time is also not on Trump’s side. While the costs and benefits of tariffs are debatable, Tal said, what is certain is that the costs will be felt first.

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By the time the mid-term elections roll around all the American people will see is the economic disruption of tariffs in inflation, jobs and output, he said.

Some form of trade penalty is likely inevitable if Trump wants to maintain credibility, said Tal, but “his kryptonite will ensure that the upcoming tariffs will be more limited in terms of scope, duration or magnitude than currently feared.”

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Investors are going long on stocks and short on everything else, according to the latest edition of Bank of America Corp.’s global fund manager survey.

Fund managers have slashed cash levels to the lowest since 2010, with big investors convinced there will be no recession, the Federal Reserve will cut rates and the trade war is “no more than a tail risk,” said strategists led by Michael Hartnett.

The survey also suggests a peak in U.S. exceptionalism, with 89 per cent saying U.S. stocks are overvalued. Thirty-four per cent expect global equities will be the best performing assets in 2025, with EuroStoxx, Nasdaq and the Hang Seng seen as the best performing equity indices.

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• Today’s Data: United States S&P CoreLogic Case-Shiller home price index, Conference Board consumer confidence
• Earnings: Bank of Montreal, Bank of Nova Scotia, Maple Leaf Foods Inc., Home Depot Inc., Stantec Inc.

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Does saving money for emergencies seem unrealistic when there are bills to pay, food to provide, and children’s activities such as soccer or dance to fund?

Personal finance experts frequently advise having enough money to cover three to six months of expenses in case you find yourself unable to work. However, given the high cost of living, this advice might seem impractical.

Mary Castillo offer three strategies for dealing with emergency expenses and suggests the best approach is what works for you, even if it is a combination of the different tactics.

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Calling Canadian families with younger kids or teens: Whether it’s budgeting, spending, investing, paying off debt, or just paying the bills, does your family have any financial resolutions for the coming year? Let us know at wealth@postmedia.com.

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McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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