Daily Points

ON DECK FOR WEDNESDAY, APRIL 2

KEY POINTS:

• Markets await intensified tariff wars
• Trump seems undecided on tariffs ahead of 4pmET announcement
• What to expect is about pure speculation
• Canada continues to indicate less than dollar-for-dollar tariffs…
• …that may effectively mean targeted, politically impactful import bans…
• …but PM Carney’s polling may be sensitive to the strength of his response
• Understanding US tactics and goals is key to forming a response
• China takes steps to freeze company investment in the US
• US vehicle sales soared ahead of tariffs…
• ...but Canadian auto sales did not
• US ADP, factory orders to be mere distractions

4pmET today. Be there. The end.

Maybe there will be headlines throughout the day on tariff plans that are expected to be unveiled after markets close that could reveal plans.

For now, we have stocks under water again with losses of ½% to 1% across NA futures and European cash markets. There are minor declines across global sovereign yields. The dollar is little changed relative to key crosses like the euro, yen, CAD and sterling.

CANADA CONTINUES TO SIGNAL TARGETED RETALIATION

Canada’s trade advisers are indicating (here) that Canada’s retaliation will remain less than dollar-for-dollar in nature—as it has been to date, despite the incorrect political labelling—and steer clear of things like food that could cause greater price hikes in Canada.

The loose reference to 250% tariffs on Teslas implies a willingness to basically have import bans on products that are the most impactful to Trump’s inner circle and his base. The impact of such a move on Canadians would be minor given Tesla’s 1,400 workers in Canada and alternatives.

It’s also unclear what other retaliatory mechanisms are possible and perhaps because we don’t even know what the Trump administration will do. A weak response by PM Carney could play unfavourably in the polls given that trade tensions have been a major part of the reason why support for the Liberals has surged.

CHINA FREEZES US INVESTMENTS BY COMPANIES

Unconfirmed reports from anonymous officials indicate that China is applying restrictions on new US investments by its companies. This reportedly does not include China’s buying of US financial assets. Nevertheless, it’s the kind of capital control that one should fear as the flip side to trade wars that mess with the trade balance and broader current account. This step is part of why messing with tariffs can unleash a whole wave of other effects.

TODAY’S OTHER US RELEASES WILL BE MERE DISTRACTIONS

Everything else on the docket will pale by comparison including ADP private payrolls (8:15amET) and US factory orders in February (10amET). Don’t waste your time on ADP if nonfarm is your focus; market robots often react, but it’s a poor gauge in terms of forming adjusted nonfarm expectations and it’s a distraction ahead of tariffs. And don’t waste your time on nonfarm if Powell’s ensuing reaction to tariffs on Friday—and that of much of the Fed’s BoG—is your focus.

US AUTO SALES SOAR AHEAD OF A LIKELY PLUNGE

Among the many signs that tariffs are affecting behaviour are the vehicle sales numbers out of the US during March. US vehicle sales soared to 17.77 million at a seasonally adjusted and annualized rate last month (16.2 consensus, Scotia 16.5, 16.0 prior). Chart 1. That’s far above the industry guidance that was about one million less perhaps because such guidance is based on about the first two-thirds of the month and maybe there was a late surge ahead of tariffs. In any event, this gain would single-handedly add well over 1% m/m to US retail sales growth when it arrives on the 16^th albeit some of that surge might have come at the expense of used vehicles and other forms of consumer spending.

CANADIAN AUTO SALES ARE NOT FRONT-RUNNING TARIFFS

Canada's media headlines on auto sales were overstated late yesterday. The headlines quoted NSA numbers for March. March typically picks up in seasonally unadjusted terms. The SAAR (seasonally adjusted at an annualized rate) numbers posted a very slight gain (here).

In short, you're not seeing tariff front-running on auto sales in Canada over the past couple of months. That's likely because the tariffs are being applied by the US on US imports while Canada is not talking about tariffs on its auto imports possibly with the exception of Teslas after today. Because there isn’t any obvious tariff front-running, Canada is less vulnerable to the pulled forward ensuing weakness.

WHAT HAS BEEN DONE ON TARIFFS TO DATE AGAINST CANADA AND BY CANADA

Here is a quick summary of the tariff measures to date as applied against Canada and Canada’s retaliations to date. See below, plus yesterday morning’s note that offered comments drawn from the USTR’s report (here) plus my Global Week Ahead—Tariffied! (here).

• Canada already faces 25% tariffs on steel and aluminum including raw metals and value-added products.
• Canada pays a 14.5% tariff on lumber exports to the US. The US has threatened to raise that to 27% as soon as tomorrow and possibly 50% later but with no firm dates.
• Automotive tariffs are set to come into effect on Thursday, April 3^rd. Current language states that 25% tariffs on assembled passenger vehicles will apply only to non-US made content within Canadian and Mexican imports. We’ve estimated that the tariff would be apply to roughly 50% for Canadian values for passenger vehicle exports and 62% for Mexico.
• The 1-month reprieve for USMCA-compliant imports is set to expire today. That means that a 25% tariff will once again apply to all non-energy/potash goods exports from Canada and Mexico, and a 10% tariff will apply to energy/potash exports. It’s unclear whether these tariffs will be replaced by the reciprocal tariffs or not, or if the USMCA-compliance exemption will be extended. But, again, we go off official announcements, which are currently that they expire on April 2^nd and the full blanket tariff will apply (and be stacked on top off steel and aluminum).
• The US has threatened 25% copper tariffs but with no firm implementation date beyond stating they are coming in weeks, rather than later in the year as had been previously expected.
• The US has threatened dairy tariffs but with no firm dates or details.
• The US has threatened tariffs on pharmaceuticals but with no firm dates or details. Recent unconfirmed remarks indicate they won’t be included in tomorrow’s announcements.
• Today by 4pmET, reciprocal tariffs will be announced by the US administration. It’s not clear whether the tariffs will be announced with details shared. It’s not clear what the overall structure will be.
• Any and all international retaliation in response to reciprocal tariffs is pending and pledged shortly after US announcements. There currently isn’t a lot announced but expect plenty of details to emerge throughout the week.
• Canada has imposed 25% tariffs on $60 billion of imports and has previously stated a willingness to apply tariffs against another $95B of imports. PM Carney has said strong retaliation will be forthcoming after tomorrow’s US announcements. Other tools are possible including export taxes but face a much higher bar. Carney has pledged to return to possible negotiations after the election if he wins.

WHAT TO EXPECT ON US TARIFFS

So what to expect today? No idea. Nor do they, it seems. Steep universal tariffs were pumped by Trump on Sunday. Then modest reciprocal tariffs were emphasized by Trump on Monday night. Then there was a late Tuesday report that the USTR is advancing proposals for steep but not universal tariffs on a subset of countries and industries. Then Treasury Secretary Bessent indicated that high tariffs set at a capped peak would be applied against countries that would then have to bargain with the US to get them lowered. We also don’t know if the tariffs on individual sectors and commodities will be additive to other broader measures. It’s just hours before the announcements and word on the street and in the alleyways is that they have yet to make a choice. The best decisions amid rampant indecision always get made by rushing them in a frantic way, I always say!

As far as other guides go, see yesterday’s morning note for the USTR report (here) and put that report to its deserved use by burning it. It is so thoroughly misaligned with everything that Trump has threatened against multiple countries including Canada as to be a false guide.

WHAT’S AT STAKE AND TACTICS

Trump’s tryst with tariffs is scheduled for 4pmET in the White House’s Rose Garden. His late-night dalliances with unaccountable, protectionists will take center stage. An afternoon of frivolity at the expense of sound economic policy lies ahead along with his correction of the lyrics to his own suiting by indeed falsely promising you a Rose Garden. After months of rumours and playing hard to get, Trump’s courtship of stagflation and frayed international relations will finally reach a crescendo. The markets cry, ‘but how far will he go?’

Answering that—and understanding what the response should be—depend critically upon understanding what Trump is out to accomplish.

Before getting to that, my beef isn’t with Americans, just to be clear; not in the slightest. Canadians are well accustomed to having close cross-border relations with family, friends, colleagues, and clients. It’s not with the US economy, US financial markets, US innovation and technological prowess either, all of which I hold in high regard as frequently written. But we cannot misinterpret—much less ignore—the policy ambitions of this administration compared to what I feel are thoroughly misguided narratives that fail to read the consistency of the overall approach on multiple policy fronts.

There is no merit to tariffs; no respectable economist would say otherwise. Period.

They are not a negotiating tactic. Period.

Their use is not to be treated lightly as they can light a fuse you cannot put out. Period.

American surveys are showing more of them are turning sour on allies; surveys elsewhere show more allies turning on Americans. Witness Yougov polls and here.

They are not a way of levelling the playing field if properly defined with all players on the field including tariffs, nontariff barriers, chosen macroeconomic policies and subsidies. Period.

There is no art of the deal applied at the level of sovereign states. Period.

There is nothing to negotiate in terms of false claims that have been made. Period.

The US focus should be upon US macro policies that have caused America’s own challenges while still managing to be an economy envied by many. Period.

The Trump administration is fundamentally isolationist and protectionist. Period.

It has rubbed out signatures on agreements across a broad swath of international relations from the Paris Agreement, the WHO, and CUSMA/USMCA to name a few, all the while overtly threatening allies and alliances including NATO and courting adversaries. Examine the evidence for what it is, and it is not a merely temporary reset in the sole area of tariffs.

It wants other territories and other nations’ industries with the inability to understand why that’s just fundamentally wrong. Period.

Through extraterritorial application of US preferences, it seeks to unrightfully violate the power of sovereign nations and democracies to determine their own domestic policies in such contentious areas as language, diversity, the environment, regulatory standards, tax policy, and even their choice of friends! Period. Perhaps some policies should be altered subject to individual beliefs, but that’s the business of independent democracies.

It wishes to manipulate foreign taxpayers to the advantage of its own military-industrial complex while making the world a more dangerous place with the tempting toys of war littered around us all. Period.

It wishes to have the world emulate American fiscal policy; lord help bondholders. Period.

Make no mistake, this is an all-out effort by the US administration to heavily impose its will in all facets of our lives.

I remain of the view that when confronted by such zero-sum forces, the pacifist’s dictum that one must roll over and resist retaliation is wrongheaded. That’s the path toward policy assimilation. Who do you think you are!! The only way to dissuade the US administration from such policies and reassert one’s right to self-determination in unwavering fashion is to shove back just as hard. Let me see if I understand you correctly: You want everything to come back to your country behind multiple, big, beautiful walls, but also the right to have unbridled access to foreign markets? Yeah, fat chance.

The politics certainly demand so and will dictate everything. From Brussels to Ottawa, Mexico City to Beijing, no politician will wish to have their job descriptions written in Washington's erasable ink. I’m sure the retaliatory announcements have already been drafted and are ready to hit ‘send’. Making the pain as evident in the other direction on the path to mid-term elections is the best way out from all of this.

If Trump pulls a 2018 today, then his most ardent supporters will say that he caved and mockery will ensue. If he doubles down and escalates, then I truly fear for the outlook, the unintended effects, and the nearly impossible to forecast consequences. 1930 Smoot-Hawley. The 1500s through 1700s. McKinley’s tariffs that restrained growth amid a population boom and rampant inflation. US trade policy is being influenced by romanticised and strikingly uninformed interpretations of these past episodes.