A few months back I wrote that Canada cannot win a trade war with the United States and that we were dependent on their market for our goods.
That's still true today, and it's put us in a weaker position with negotiations.
There's always a but though, and this time there's a good ‘but’.
Maybe Canada and its federal government should pause all negotiations with the United States for the next year or two.
Sound radical?
Shocking?
It is. But, there's no point in negotiating with Donald Trump's regime. Just ask Japan.
They had a deal for a framework to begin formal negotiations and then Trump broke it levying new tariffs. Worse, Japan's government thought they'd get a preferred access to the US market only to find out that the base rate on tariffs would be 15% and other countries would be getting that anyway.
Canada isn't going to get much of a deal with Donald Trump today. He's got it in for us, and he thinks he's in the better position. In some ways, he is. The US is a huge market and we're desperate to maintain our very preferred access to it.
So why should we wait? The answer is that Donald Trump won't be so strong in year or so.
Why you ask? Well, the economic numbers point to an American economy that has had its legs knocked out from under it.
Let me explain.
First, job creation has cratered and all but collapsed in the last few months. Those poor numbers prompted Trump to fire the head of the agency that produces those numbers calling them fake. His interim appointee has said that the nation would move to quarterly reporting with the first round being preliminary and the second round being final. Currently, it’s done monthly.
What is clear is that after a quick review the new head couldn't contradict the old head or the old numbers. Hence, the new narrative.
Regardless, US job creation is way down and looking at pre-recession levels.
Second, the report for wholesale prices came in for July. From January till the end of March, American businesses placed record orders for imports from China, Canada, South Korea, India, etc. to avoid paying tariffs. It resulted in a big GDP bump that has since diminished. The big number though was the rate of increase in wholesale prices after tariffs were finally levied.
Understand that any number over 2% is large. Economists were anticipating a number around 2.4% which would have been very large and very bad.
Naturally, this number is a part of the factor in inflation and how it gets calculated and by extension what it will be in the short, medium, and long term.
Over the fast two quarters US businesses have eaten most of the cost of tariffs. They've taken hits to their bottom line and profitability. It hasn't been large yet as Trump has turned the tariff tap on and then off repeatedly.
It is in the on position now and staying that way.
Walmart and Ford have both said they will be passing the costs of tariffs onto consumers over the next few months. Sony, General Motors, Apple, Amazon, etc. have already said the same thing. Do you expect companies to eat the costs of tariffs forever?
What this means is that for a base 15% tariff rate, that over the next 12-24 months, US inflation is going to spike. Economists have put forward various numbers and there are highs and lows but the average is 12%.
Consider how tough 8% was on the economy in 2022 and 2023. Now adjust that 50% higher and imagine what it will do.
The US will enter a deep and prolonged recession.
That's when Canada should be talking trade with the Trump regime. At that point the calls to end tariffs outright or at least roll them back will be at their greatest. The American consumer, even the most dire of MAGA, will not support a regime that blows up inflation - at least for long.
Canada, even with all that going on, will still have to make some concessions, but Trump will be under enormous pressure to sign deals that are favorable to the American consumer by then.
That's when we should negotiate.
What we're doing today is an exercise in beating one's head against a brick wall.
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