U.S. President Donald Trump had implemented 25 per cent tariffs on Canadian goods on March 4, only to lift the tariffs on March 6. At the time of writing this article, the blanket tariffs of 25 per cent on Canadian goods (except steel at 50 per cent and energy at 10 per cent) were paused until April 2.
All economists, whatever their political stripe, agree on one principle: disposable income increases when the individual household spends less of its income on food and energy. The standard of living decreases when these costs increase.
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A rational family sitting down for a budget discussion should raise savings, reduce the risk those savings face when invested, and make a point to keep up with every twist and turn of emerging U.S. tariff and tax policy.
For example, a household that spends more on food and energy has less to put children in hockey, piano lessons or travel. Trump’s tariffs will increase the price of food and energy for the average U.S. consumer, thereby lowering the standard of living. For the lower-income bracket of the population, tariffs are a consumption tax. This is the bottom line.
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U.S. tariffs increase the costs of goods for the U.S. consumer, while retaliatory tariffs by Canada will increase costs for the Canadian consumer. Tariffs are protective; tariffs protect the consumer from low prices. The reason for tariffs is always job protection or job growth. However, the larger party is the consumer group, which suffers. Forget about 100 jobs when half of the U.S. population (the lower half of the income bracket) seriously suffers.
Prior to March 4, the trade agreements in place for Canada, the U.S. and Mexico resulted in great prosperity for North America. U.S. corporations had record profits for the second, third and fourth quarters of 2024. There were over 7.7 million job vacancies in the U.S. at the end of January.
The U.S. unemployment rate has been at historical lows (under four per cent) since December 2021. Since the 2020 recession, the Dow Jones Industrial average has gone from 20,000 to highs of 45,000 in November 2024. The current trade agreements have catapulted the U.S. to unprecedented wealth. Live cattle futures went from a low under US$100 during the recession of 2020 to record highs of US$209 in January 2025, mirroring the move in the equity markets.
The trade policies that have been in place have been very good for Americans. However, Trump wants Americans to believe otherwise. According to him, the trade agreements that were in place have hurt Americans and it’s time for a day of reckoning. According to Trump, Americans have been taken advantage of and it needs to stop.
Financial analysts estimate the Trump tariffs could cost the average U.S. household $2,000 to $3,000 per year. You can multiply that by 131 million households to have an idea of the full cost of the tariffs. This will come out of the equity markets. I was talking to my friend in the U.S. who stated if he missed the “big short” during the subprime mortgage debacle in 2008, here is his chance to short the U.S. stock markets for the windfall. A country like the U.S. cannot place tariffs on its three largest trading partners and not think there will be severe consequences. We could see the equity markets loose about 25 per cent of their value over the next couple of years. There is a usually a four- to six-month lag between Dow Jones Industrial Average and the live cattle futures.
The truth is that Trump’s trade policies will hurt the American consumer. Retailers Walmart, Home Depot and Target have all raised concerns about weaker consumer spending, which comprises about two-thirds of U.S. gross domestic product (GDP). Polls from the Conference Board and the University of Michigan tell us consumer confidence is waning. The Federal Reserve Bank of Atlanta’s GDPNow economic model projects U.S. first-quarter GDP (gross domestic product) at minus 2.8 per cent. This comes after a solid eight quarters of stellar growth with GDP, in the range of positive two per cent to four per cent.
Consumer spending in the U.S. has been running at 3.2-4.2 per cent quarter-over-quarter annual rate over the past two years. Remember, a one per cent increase in consumer spending equates to a one per cent increase in beef demand. Consumer spending makes up nearly 70 per cent of U.S. GDP. We’re going to see higher unemployment numbers and inflationary pressures will increase. Consumers will pull in the reins on spending.
If Trump implements tariffs according to his plan, there is risk of a serious North American recession. Protectionism enhanced the Great Depression of the 1930s. U.S. manufacturers wanted protection after the stock market crash of 1929. The Smoot-Hawley bill was signed into law on June 17, 1930. Apparently, there were 1,000 economists who implored President Hoover to veto the bill. Basically, the U.S. population was out of money and then the president increased prices on 20,000 goods to put the final nail in the coffin for a full-out depression.
Many cattle producers have asked “How does it end?” These types of government organizations usually implode from the inside. For example, it took five quarters or nearly two years of negative GDP on a per capita basis for Canada’s Liberals to decide that it was time to change leaders and change policies. How much are you going to hurt the population and how much damage will be done before it ends? That’s a good question. The next question is: how long with it take to repair? Donald Trump is undoing 75 years of trade progress.
