Business News

Higher prices are showing up on some items that are being counter-tariffed by Canada. But levies were left off many food items from the U.S., which has moderated the overall impact on grocery budgets.

Benjamin Tal, Deputy Chief Economist CIBC Capital Markets, talks with Financial Post’s Larysa Harapyn about the impact of uncertainty under Donald Trump on Canada’s economy , which may already be in recession.

• Auto tariffs could be 'quite devastating': Linda Hasenfratz
• Share via email Reddit X Share on Linkedin 'Unprecedented' times will test investors: Kelley Keehn

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Inflation grew less than expected in March, rising 2.3 per cent year over year versus forecasts of 2.7 per cent.

But without the decline in gasoline prices , inflation grew 2.5 per cent in March from the same time last year. In February, headline inflation grew 2.6 per cent.

Here’s what economists think the latest inflation numbers mean for the Bank of Canada and interest rates as policymakers get set to release their latest decision on Wednesday.

‘Temporary, volatile’: Alberta Central

“Temporary and volatile factors,” including the end of the GST tax break and falling oil prices and travel costs, were responsible for the overall inflation rate slowing in March, Charles St-Arnaud, chief economist at credit union Alberta Central, said in a note.

He also highlighted that the share of items in the consumer price index basket that increased by more than three per cent rose in March to “its highest in more than a year and well above historical norms.”

Overall, the report suggests that “while inflation eased in March, it may not be sustainable,” St-Arnaud said, pointing to some “stickiness” in core prices that exclude volatile items such as food and energy, and looming pressure from the trade conflict with the U.S.

“While the weaker inflation increases the likelihood of a cut at tomorrow’s meeting, we think the Bank of Canada is likely to take a pause to better assess the situation, especially in light of broadening inflationary pressures,” he said.

Bets for cut rise: Oxford Economics

“March marked the first month of Canada’s counter tariffs on $60 billion of U.S. imported goods, but there were few signs that firms had passed those higher costs onto consumers,” economists Tony Stillo and Michael Davenport at Oxford Economics Ltd. said in a note.

They expect inflation to cool again in April to around two per cent year over year on the elimination of the carbon tax and the drop in oil prices.

However, they think inflation will flare up again in the second quarter and gain momentum as counter tariffs on $35-billion worth of automobiles made in the United States — implemented on April 9 — work their way into the economy. They are forecasting inflation to grow to nearly three per cent year over year by year-end, driven by the Canada-U.S. trade war.

The market briefly boosted bets on a rate cut to about 45 per cent after the release of the data, before sinking back at about 35 per cent.

“However, with rates firmly within neutral territory and plenty of uncertainty about trade and fiscal policy, we still expect the bank to pause as it tries to balance the upside risks to inflation from tariffs against the downside risks to the economy,” Stillo and Davenport said.

‘Cut is back in play’: Monex

“The March inflation data undershot expectations to put a Bank of Canada rate cut this week back in play,” Nick Rees, head of macro research at Monex Europe Holdings Ltd., said in a note.

Much of the slowdown could be attributed to a drop in gasoline and transportation costs, which retreated significantly from February.

Rees said the same dynamic was recorded in U.S. inflation data released last week.

He said a drop in cross-border travel from Canada to the U.S., which hit domestic demand, also contributed to the drop in costs.

Policymakers would have held rates at last month’s interest rate decision rather than cut by 25 basis points had it not been for Donald Trump ‘s escalating tariff threats against Canada, according to minutes of the Bank of Canada meeting.

Rees said the risks appear to have “faded” somewhat on Trump’s mounting reversals, including signals that he is considering the end of 25 per cent tariffs on Canadian-made vehicles.

“That leaves the governing council with a much freer hand to focus on domestic economic conditions and, as such, we suspect that they will take the opportunity to pause,” he said.

Avoiding ‘regret’: Desjardins

In a trade war, “o fficials have the luxury of not being forced into a decision they may later regret ,” Royce Mendes and Tiago Figueiredo at Desjardins Group said in a note, referring to a scenario where the Bank of Canada cuts rates only to have to backtrack as inflation heats up on the fallout from Trump’s tariffs.

The Bank of Canada has cut interest rates 225 basis points to 2.75 per cent from five per cent in June 2024, the biggest cut by any Group of Seven central bank.

“Given the lags in monetary policy, some of that stimulus is still working its way through the economy,” Mendes and Figueiredo said.

Businesses and consumers are also expecting higher inflation, so the Bank of Canada will be wary of doing anything that encourages those expectations, they said. Policymakers were burned by inflation that soared in the aftermath of the pandemic.

They think officials will opt to wait and see whether the inflation that an all-out trade war would likely unleash actually materializes.

“We believe the Bank of Canada will opt to hold its policy rate steady at 2.75 per cent,” they said.

Trade war ‘de-escalating’: Capital Economics

The Bank of Canada’s preferred inflation measures slowed in March after posting above-target monthly increases for the past seven months, Thomas Ryan, North America economist at Capital Economics Ltd., said.

• Bank of Canada could go either way this week
• Canadian dollar is on the rise and that might not be a good thing

The average three-month annualized rate for CPI-trim and CPI-median slowed to 2.7 per cent from three per cent, “but at that level, underlying inflation remains too high for the Bank of Canada’s comfort,” he said in a note.

With inflation concerns easing for the moment and signs that the trade war between Canada and the U.S. could be de-escalating, “we expect the Bank of Canada to keep interest rates on hold while it waits to assess the impact of retaliatory tariffs.”

• Email: gmvsuhanic@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Federal Finance Minister François-Philippe Champagne has announced help for Canadian businesses affected by the trade dispute with the U.S., giving them time to adjust their supply chains.

Hudson’s Bay Co. has been hoping to find an amicable way forward ever since it went to court in March to seek protection from its creditors because it was struggling to pay its dues to landlords, vendors and service providers, but its future is as cloudy as ever despite multiple trips back to court.

Court orders have provided some direction on the liquidation sale now occurring at Canada’s oldest department store chain , but there have been some disagreements with creditors that still need to be dealt with. Here’s what has happened in the past month and what can be expected going forward, given the deadline for buyers to submit bids is April 30.

From full liquidation to an attempt to save six stores

Hudson’s Bay on March 7 decided to seek protection from its creditors through the Companies’ Creditors Arrangement Act (CCAA), with the application granted by the court that same day.

HBC’s move was supposed to provide the company, which has been struggling with the shift towards online shopping, with “breathing room” as it looks for financing. But that plan didn’t work out, as it said trade tensions between the United States and Canada have pushed potential financiers to the sidelines.

The company on March 14 said it would have to liquidate all 96 of its stores unless “an alternative solution” emerged, but it needed a court order to do so since it was under CCAA.

That was granted on March 21 and allowed HBC to start liquidating all but six of its stores: its flagship store in downtown Toronto, as well as two others in the Greater Toronto Area and three in the Greater Montreal Area.

But that doesn’t mean those six stores won’t eventually be a part of the liquidation process. HBC still needs to find a way to make a firm commitment to pay its creditors by the end of April. If it can’t, then these stores may also be liquidated.

“In discussions with the liquidator, we were able to negotiate for their removal, at least on a temporary basis,” Ashley Taylor, a lawyer at Stikeman Elliott LLP representing HBC, told the court on March 21. “There may be some opportunity to restructure around those stores. However, the time to do so remains very short.”

He also said he wanted “to be crystal clear” that HBC did not at the time have an agreement on which it could base a restructuring plan.

Judge Peter Osborne, who has been hearing the motions at the Ontario Superior Court of Justice in Toronto since March 7, said the more stores “carved out” from liquidation, the better.

“There’s no alternative but to approve the liquidation effective immediately to maximize the chances of success,” he said on March 21.

The restructuring plan that wasn’t approved

Osborne has approved several requests from HBC, including its liquidation plan, its plan to monetize its leases and its sale and investment solicitation process (SISP), which essentially paves the way for it to earn money by either selling assets or by getting investments.

But he didn’t approve a restructuring plan created by HBC and some of its senior lenders that imposed restrictions and controls on the retailer’s next steps. The deal was characterized as a positive step because it allowed for the liquidation sale, but imposed various “guardrails” within which the company must operate if it is to have the confidence of the lenders, the judge said in a court filing.

For example, it would have required HBC to comply with an agreed-upon budget.

But Osbourne rejected the agreement because he didn’t find it “necessary nor appropriate” since “controls” were already in place and the oversight of the court-appointed monitor was sufficient enough to protect the lenders’ interests.

Some other parties also didn’t agree with certain conditions of the agreement. For example, lawyers representing some HBC workers last month said the move would have prevented any attempt to provide representative counsel to employees.

“There will be a strong need for a representative counsel to be appointed for the employees and retirees,” Koskie Minsky LLP lawyers said in a filing. “The (agreement), with its vice-like grip on what HBC can do in these proceedings, preemptively prohibits any attempts to provide representative counsel to those employees … it should not be approved.”

More than 9,000 HBC workers are expected to be impacted as a result of the liquidation. Jody Nesbit, president of Union Local 240, which represents about 60 Bay employees, said last month that some workers may be eligible to receive a maximum of about $8,800 as per the federal Wage Earner Protection Program Act, but that’s a third of what the company reportedly offered some workers at her union about 18 months ago during a previous restructuring attempt.

She said reality is “slowly setting in” for the employees, many of whom have worked at HBC for almost their entire working lives, including one person who was there for 38 years.

Are there any buyers?

HBC is still looking for funding in April by earning money through liquidation sales, monetizing some of its leases and through the SISP. The deadline for buyers to submit binding bids is April 30, as is the deadline for anyone wanting to buy the leases it holds.

It hasn’t revealed any bids as yet, but British Columbia-based Chinese billionaire Weihong Liu is reportedly interested in buying dozens of HBC locations. She is chair of Central Walk, a retail investment company that owns three malls in B.C.

• Live Q&A: The election, the trade war and your personal finances
• HBC's restructuring plan opposed by employees, joint-venture partner RioCan

A document called Insider Protocol was also sent last week to all parties involved in the HBC case, suggesting someone within HBC could be interested in placing a bid, though that’s not a certainty.

“This protocol has been established to ensure the integrity and fairness of the SISP and/or the lease monetization process for all participants, in view of a potential insider bid that may involve certain members of management for purposes of assisting the insider in considering, advancing and submitting a potential insider bid,” the document said.

• Email: nkarim@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Honda Canada says it is not planning to move production out of Canada to the U.S., contrary to reports from a Japanese news outlet. 

StatCan said gas prices fell 1.6 per cent year-over-year in March, coming off a hike of 5.1 per cent in February

Buy Canadian is sweeping the nation, but patriotism comes with a cost, say economists.

In an “elbows up” defiance of U.S. President Donald Trump’s talk of making Canada the 51st state and his tariff onslaught, many Canadians have been shunning American goods for domestic alternatives.

“The Buy Canadian movement is deepening, and recent years have taught us that behavioural forces matter in the economy,” said Robert Kavcic, a senior economist at BMO Capital Markets.

Retailers are helping by labelling Canadian products, and there has also been “an almost pandemic-like proliferation of tools to help consumers keep money in the country,” he said.

BMO estimates that the Buy Canadian movement could add about $10 billion a year to the Canadian economy , boosting growth by 0.3 percentage points.

“While that’s meaningful, there are also costs — buying Canadian can be impractical in some cases, and can come with less selection at higher prices,” he said.

It’s difficult for Canadians to avoid imports. Thirty-five per cent of household consumer goods are dependent on either direct imports or indirect, in which imported goods are used to make the final product in Canada, he said.

The biggest imports are autos, household products and consumer electronics.

“Avoiding imports altogether is almost impossible, and doing so partially could come at a higher price,” said Kavcic.

Canadians will find the best deals in grocery stores, where some Canadian products are cheaper, but selection is limited. It’s when shopping for clothes, personal items like shampoo and deodorant or household and sporting goods that Buy Canadian can get really expensive.

“The availability of close substitutes is arguably the biggest challenge and, if found, Canadians could have to pay up,” he said.

A recent survey suggests that they are willing to do that. Dalhousie University’s Agri-Food Analytics Lab found that more than 60 per cent of Canadians were open to paying 5 to 10 per cent more for Canadian-grown produce, dairy or meat over American alternatives.

Almost 50 per cent said they thought Canadian food is superior in quality and safety.

“These numbers signal a clear patriotic tilt in Canadian grocery aisles,” said Lab director Dr. Sylvain Charlebois.

“With nearly two-thirds of Canadians willing to spend more for homegrown food, the ‘Buy Canadian’ movement is not just symbolic — it’s a consumer-driven strategy in the face of geopolitical risk.”

According to Bloomberg, the Buy Canadian movement is extending to investments as well. Last week marked the biggest inflow to exchange-traded funds focused on Canadian equities in four years.

The surge came after Trump’s announcement of reciprocal tariffs on “Liberation Day.”

“There are many clients that are saying, ‘I want to sell all my U.S. positions’ because they don’t like what’s going on and they don’t want to be associated with it,” Philip Petursson, chief investment strategist at Winnipeg, Manitoba-based IG Wealth Management, told Bloomberg.

“We’re advising against that, but clients are starting to see the opportunities elsewhere around the world, and it’s not that the U.S. is the only game in town.”

Governments are also getting in on the act, and they are big buyers. Kavcic points out that according to OECD data, government procurement spending accounted for more than 13 per cent of Canada’s gross domestic product , slightly above the OECD average.

Ontario, for example, has started a Building Ontario Business Initiative that aims to direct $3 billion in contracts a year to provincial businesses, he said — and other provinces are following suit.

Any shift could be costly and governments are already big domestic buyers.

“But the raw amount of dollars spent here still points to a modestly positive economic impact should governments push this policy — and we assume they will,” said Kavcic.

 Sign up here to get Posthaste delivered straight to your inbox.

More evidence that Canadians are shunning travel to the United States in today’s chart from BMO Capital Markets. In March, there were 13.5 per cent fewer Canadians returning from the U.S. by air than the year before, and with airline bookings to the U.S. down over 70 per cent this fall, the numbers will likely get worse, said BMO senior economist Erik Johnson.

“However, the activity at the land border is flashing an even deeper reluctance to travel to America,” said Johnson.

The number of Canadians returning by vehicle fell almost 32 per cent in March. For the seven-day moving average the number was down nearly 42 per cent, compared with down 17 per cent at the end of February before tariffs took effect.

 

• Today’s Data: Canada consumer price index for March, housing starts, existing home sales, manufacturing sales
• Earnings: Bank of America Corp., Citigroup Inc., United Airlines Holdings Inc., Johnson & Johnson, Omnicom Group Inc.

Why everyone is worried about the bond market — especially Donald Trump

Leaders pitch financial incentives to boost the skilled trades

‘Buy or bury’: What you need to know about the trial that could break up Mark Zuckerberg’s empire

Elections always have pocketbook implications, but rarely is the future trajectory of the country’s economy at stake, too. We want to help you cut through the uncertainty. Join us on April 16 at noon ET for a live Q&A chat with Ted Rechtshaffen, president and portfolio manager at TriDelta Private Wealth, and Jason Heath, certified financial planner at Objective Financial Partners Inc. Ted and Jason will answer your questions about what the candidates’ proposals and the trade war will mean for your personal finances, from your mortgage to your RRSPs and beyond. Register here.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course). 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.

Financial Post on YouTube

Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

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

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at  posthaste@postmedia.com .

• Bank of Canada could go either way this week
• Why these economists think the 'worst is over' for the Canadian dollar

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here

Western Canadian farmers are questioning why Ottawa would prioritize tariffs for an emerging EV industry in Ontario at the expense of one of the country’s most lucrative agricultural products.

Being of this particular age, with their particular set of life experiences, at this particular moment in history (which didn't end, as it turns out), means the generation once notorious for its cynical and detached attitude has a particular way of experiencing all that's going on.

A landmark antitrust trial that could reshape how America’s Big Tech firms operate got underway Monday, with Mark Zuckerberg‘s Meta Platform Inc. facing accusations that it adopted a “buy or bury” strategy to squash potential rivals. The case, which could result in the Facebook owner having to divest its Instagram and WhatsApp platforms, will unfold in a Washington, D.C., courtroom over the coming weeks. Here’s what’s at stake for the tech giant, and what it could mean for its business and operations in the U.S. and around the world. 

Why is Meta on trial?

In December 2020, the Federal Trade Commission and 48 state attorneys general, launched an antitrust lawsuit against Facebook — as the company was then known — accusing the company of illegal, anti-competitive behaviour.

“For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users. We are taking action to stand up for the millions of consumers and many small businesses that have been harmed by Facebook’s illegal behaviour,” said Letitia James, New York attorney general who led the U.S. states’ investigation.

The lawsuits zeroed in on Facebook’s US$1 billion acquisition of Instagram in 2012 and US$19 billion purchase of WhatsApp two years later. The FTC accused Facebook of failing to compete with new innovators in the mobile app marketplace, alleging that instead it “illegally bought or buried them when their popularity became an existential threat.”

During the trial, the FTC will try to prove that Facebook has maintained a monopoly in the social networking space — one that has evolved with the rise of new entrants such as short video app TikTok. It will attempt to show that Facebook’s Instagram and WhatsApp purchases quashed competition and that the company subsequently leveraged its market dominance to unfairly inflate ad prices and worsen data privacy rights for users.

What does Meta say?

The FTC’s lawsuit against Meta is “misguided,” according to Meta attorney Mark Hansen. Meta’s main defence rests on trying to establish that the FTC’s definition of the social media app marketplace is too restrictive and fails to include key competitors such as Alphabet Inc.’s YouTube and ByteDance Ltd.’s TikTok. Meta also contends that the commission cannot prove that American consumers and advertisers are worse off because of its acquisitions, and argues that it has improved the startups it purchased. “Any way you look at it, consumers have been the big winners,” Hansen said.

What’s at stake for the company?

At stake for the company is its control over photo-sharing app Instagram and messaging platform WhatsApp, which each have more than 2 billion active users. Facebook must divest both businesses in order to restore marketplace competition, according to the FTC.

Meta is not only a social media company. It has invested at least over US$165 billion into artificial intelligence (AI) and immersive reality initiatives to cement its position as a serious deep-tech player.

But its lucrative ad business, of which Instagram is a key contributor, remains a major moneymaker. This year, Instagram is expected to earn US$32 billion in U.S. ad revenue for Meta — or half of the company’s ad revenue, according to numbers from market intelligence firm eMarketer. Instagram’s U.S. user base has surged 142 per cent to 148 million users in the last decade, eMarketer says.

Will other countries follow suit?

Meta in recent years has found itself in the crosshairs of U.S. and global regulators.

The EU in particular, has carved out a tough stance toward Big Tech in a bid to limit the market power and influence of U.S. tech companies. The European Commission began investigating last year whether Meta and Apple Inc. breached the EU’s digital competition rules. The EU’s Digital Markets Act (DMA) came into force in May 2023 and established guidelines for Big Tech firms in a bid to create a fairer marketplace and provide European consumers with more choice.

The EU is set to announce its verdict in coming weeks, with antitrust watchers expecting Brussels to dole out modest fines for the two companies for regulatory infractions, according to Reuters. Trump’s trade war has pushed the EU even further, with EU president Ursula von der Leyen noting that the bloc could impose fines on U.S. tech firms if trade talks break down.

Has Meta won over Trump?

Meta’s antitrust trial will be its first major test under the second Trump administration. The FTC’s case against Meta began in 2020 during U.S. President Donald Trump ’s first term.

The U.S. president previously threatened to sentence Zuckerberg to “life in prison,” alleging that the tech CEO weaponized Facebook against him during the 2016 U.S. presidential election.

Citing the changing legal and policy landscape, Meta in recent months has made a series of sweeping changes seemingly meant to assuage Trump’s criticisms of Zuckerberg and Facebook, including axing fact-checking partnerships and diversity initiatives. Last December, Meta donated US$1 million to Trump’s inauguration fund. Meta also lobbied the Trump administration in recent weeks in an effort to bring the antitrust trial to a halt and see the government and the company strike a settlement, according to a Wall Street Journal report.

• Investors have Canadian defence tech in their sights
• Trump's move to kill duty-free shipping from China will cost

“Regulators should be supporting American innovation, rather than seeking to break up a great American company and further advantaging China on critical issues like AI,” Meta said in a statement.

• Email: ylau@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

The Canadian dollar could be benefiting from both “haven” tailwinds and bets that the Bank of Canada will hold interest rates this Wednesday, say economists.

The loonie broke through 72 cents U.S. late last week and continued to hold in trading on Monday, rising to a level last seen in November 2024.

“The idea of Canada as a safe haven … is a bit of a stretch because we’re so exposed to the United States,” William Robson, president and chief executive of the C.D. Howe Institute, said. “But to some extent, somebody who’s selling United States bonds might say, ‘OK, well, maybe I’ll take a bit of a hit on the yield and buy some Canadian debt as well because they look like better creditors.'”

Karl Schamotta, chief market strategist at Corpay Currency, said a broad-based reappraisal of the U.S. economy’s exceptional status is underway and global market participants are now in a race to find alternatives. “Canada, Europe, and Japan all stand to benefit as investment flows become more diversified,” he said in an email. The haven argument holds some water for Michael Davenport, a senior economist at Oxford Economics Ltd., but he said the loonie is also gaining on the falling chances that the Bank of Canada will cut interest rates on Wednesday. The central bank’s overnight lending rate currently stands at 2.75 per cent. Chances of a rate cut this week stand at 33 per cent, down from 55 per cent last Monday, according to Bloomberg.

“Markets are starting to price in the higher likelihood of a pause by the Bank of Canada and taking out expectations of interest rate cuts this year,” Davenport said. “So, that is also at play in terms of driving the net appreciation of the dollar against the U.S. dollar.”

He said policymakers are keenly worried about landing in another inflation mess similar to the one following the pandemic.

The Canadian dollar’s current value is something of a change for the not-so-long-ago beleaguered currency.

From a low of 68.8 cents U.S. on Jan. 31 — which was less than the level reached during the pandemic — the Canadian dollar is up 4.9 per cent as it continues to recover from a plunge that began last September when polling indicated that Donald Trump’s prospects of taking the White House were increasing.

At that point, the Canadian dollar was trading around 74 cents U.S., but investors began flooding into the greenback on the belief that Trump would be good for the economy and markets with his low-tax and regulation-cutting policies.

Tariffs have upended that view, with the U.S. dollar index, which measures a basket of major currencies including the Canadian dollar, down 9.4 per cent since mid-January.

“The bigger picture is that North American currencies are down compared to the rest of the world,” Robson said. “The United States, in its position as the provider of the most secure debt securities, in its position as the provider of the currency that most of the world settles its transactions, these things were never really in question for decades and are now in question, and it’s very hard for investors to know where to go.”

The strengthening of the Canadian dollar has consequences. For example, a rising dollar is negative for Canadian oil producers since exports are priced in U.S. dollars, Nima Billou, assistant vice-president of energy, utilities and natural resources at Morningstar Inc., said.

“For producers, what happens is WTI (West Texas Intermediate) is priced in American (dollars) and then what they receive in the local Canadian benchmarks, once it’s translated over into Canadian dollars, as the Canadian dollar strengthens, they’re going to receive less,” he said in a report, adding that a one-cent rise — or decline — in the Canadian dollar represents a cash-flow gain or loss for Canadian producers of $1.5 billion.

In an earlier column in the Financial Post, when the loonie was trading much lower against the U.S. dollar, Robson said a weaker currency, which he described as ill-tasting “medicine,” would take some of the sting out of U.S. tariffs because Canadian goods would simply cost less when prices were converted into greenbacks.

 

But Davenport said the loonie’s value is a tough balancing act for Canada. On one hand, a weaker currency against the U.S. dollar makes exports cheaper, but a strong dollar will make imports more affordable for Canadians.

“Those increased imports from improved purchasing power … would weigh and drag on the Canadian economy,” he said. “It’s not necessarily going to benefit the overall level of GDP in the economy, whereas a weaker Canadian dollar will benefit exports, and that would provide a little bit of a cushion and a booster buffer to Canada’s economy.

However, the Canadian dollar is down 7.5 per cent against the euro and 7.4 per cent against the Japanese yen since mid-November.

“To some extent, there’s a bit of a silver lining in the cloud for Canada, which is that our exports are getting quite a bit more competitive against other markets,” Robson said.

He said that is a good thing, especially given that Canada is looking to diversify its trade to other markets in an effort to break its hefty reliance on the U.S.

• Live Q&A: The election, the trade war and your personal finances
• Canadian dollar on a tear, rising above 71 cents U.S.

In February, 80 per cent of Canada’s merchandise exports were sent to the U.S., with China coming a distant second, accounting for 3.8 per cent, while Japan was fourth at 1.7 per cent and Germany, France and Spain combined took in 1.5 per cent.

“Trade diversification is part of the answer for us,” Robson said. “But the lower Canadian dollar against other currencies in Europe and Asia and elsewhere in the world is actually part of the answer for us because we are going to badly want to export more to them if we’re having trouble exporting to the United States.”

• Email: gmvsuhanic@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

President Donald Trump on Monday suggested that he might temporarily exempt some auto manufacturers from tariffs he previously imposed on the sector, to give carmakers time to adjust their supply chains.

The full impact of United States President Donald Trump ‘s trade war, including tariffs, reciprocal tariffs and escalating tariffs on Chinese goods, has yet to be seen.

And while there is currently a 90-day pause on his reciprocal tariffs on about 60 countries and territories, what might follow the reprieve, along with all the economic uncertainty in general, is affecting Canadian clothing retailers that make their products overseas.

Many apparel companies had already shifted production from China to other Southeast Asian countries such as Vietnam and Cambodia due to tariffs imposed during Trump’s first term.

Many people assume the tariffs will lead to higher prices on goods, but this may not be the case for some retail companies, particularly those that don’t enjoy as much brand loyalty from consumers, said a senior analyst at Bank of Montreal who specializes in retail and e-commerce.

Simeon Siegel said there are ways retailers can absorb the cost of tariffs on production without necessarily raising the price.

“Tariffs do not give companies permission to raise prices. Consumers give permission to raise prices,” he said.

Siegel, who covers Lululemon Athletica Inc. and other apparel companies such as Nike Inc. and Birkenstock Holding PLC, said retailers might ultimately try to offset the higher tariff costs with higher prices, but discounts could return just as quickly if shoppers push back.

Vancouver-based Lululemon is one of many apparel retailers that could potentially be affected by Trump’s “Liberation Day” reciprocal tariffs, which included a 46 per cent tariff on Vietnam.

The company started moving its production to Vietnam in 2016, along with other companies that have diversified manufacturing in recent years, in hopes of avoiding Trump’s previously imposed tariffs on China.

Last Wednesday, Southeast Asia was thrust into the same conversation as China, Siegel said.

“All these companies that spent a lot of time and money believing they were de-risking their manufacturing, doing what they were supposed to be doing and moving into countries like Vietnam, found out they were going to be punished just as harshly, if not more,” he said.

Those companies’ stock prices fell the day after Trump released his reciprocal tariff chart, with Aritzia Inc. taking the biggest hit on the S&P/TSX composite index, with its shares dropping more than 20 per cent, and Lululemon’s shares were down nearly 10 per cent on the Nasdaq, as reported by the Canadian Press. Gildan Activewear Inc. shares were down almost ten per cent on the S&P/TSX composite.

Siegel said he believes the uncertainty of the tariffs has been “scarier” than their actual severity since those retailers still don’t know the problem they’re trying to solve.

In a note to clients, Royal Bank of Canada analyst Irene Nattel said apparel retailers Aritzia and Groupe Dynamite Inc. , both of which source extensively in countries at the top of Trump’s tariff chart, have noted multiple tools to manage tariff-related margin headwinds.

Stephen MacLeod, an analyst specializing in retail at BMO, in early March said Aritzia currently sources about 35 per cent of its products from China, with the goal of bringing this down to 25 per cent in the fiscal year 2026.

Aritzia fulfils 65 per cent of U.S. e-commerce orders from Canada, but the company could switch to 100 per cent U.S. fulfilment in 2028 to 2029 with a new distribution centre in the U.S., he said.

Groupe Dynamite sources around 75 per cent of its products from China, with approximately 50 per cent of sales to the U.S. shipped from Canada, MacLeod said.

Apparel, unlike other goods, is largely discretionary, so it will not be as easy to pass on cost increases as it would for things people need and are not substitutable.

“There’s different ways to do all these, but the best way to offset a tariff is by raising prices. That only works if you’re allowed to raise prices,” Spiegel said.

Companies best positioned to raise prices to offset tariffs are those that have built strong connections with their customers. Not all companies have this luxury. Clothing companies that don’t have strong branding might have a harder time increasing prices.

Such companies can either cut costs elsewhere or bear the brunt of the pressure. Their next option would be cutting the cost of production, trimming fat or cutting corners — for example, lowering the quality of the product, Spiegel said.

• Trump tariff shift brings Apple from brink of crisis
• Carney says economies are slowing amid Trump’s tariffs

With events ever-changing, retailers now have to deal with the uncertainty surrounding tariffs.

“It makes less sense to try to fix the problem until they know what they need to solve for,” Siegel said.

• Email: dpaglinawan@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

There’s been no clear path for Canada on how best to manage relations with the United States, but there are emerging signals of a possible path to avoid the worst of what is still to come, particularly a review or full renegotiation next year, if not sooner, of the Canada-United States-Mexico Agreement (CUSMA).

The critical question for Canada — and others — is how does a country offer potentially irreversible concessions on deeply important issues in exchange for promises that are, at best, uncertain to be kept and may not last as long as it takes the ink on the agreement to dry? All in exchange for a deal worse than no deal at all, accompanied by public humiliation and concomitant domestic political blowback.

There is no simple solution.

As bad as this is, walking away or diversifying to other markets is an option Canada has tried and failed at.

Fifty years ago, the last time across-the-board tariffs from the U.S. blindsided the country, Canada embarked on a continuous, well-financed and well-resourced effort to diversify to other markets. That we are, once again, in the same dilemma but with an even greater trade dependence speaks volumes about the lack of success of this strategy. Other strategies, such as increasing trade within Canada, will also, at best, provide marginal help.

Signing a trade deal with the U.S. turns out to have been akin to checking into the Hotel California: You can check out anytime, but never leave.

Canada has to find a better path to survive a U.S. it cannot leave. This requires a return of confidence, which in turn requires a version of Ronald Reagan’s doctrine for dealing with an untrustworthy partner: “Trust, but verify.”

This is not impossible. It requires two changes in the U.S. and there are early signs that both may be in process.

First, the American public must fully absorb the object lesson on the cost of bad economic and trade policy. This began after Donald Trump’s election , when Google searches for “what is a tariff” surged 1,650 per cent.

Since then, the textbook definition has played out in real time, reinforced by media saturation and lived experience. At some point, the daily beatdown of the MAGA trade worldview on television and in retail stores becomes impossible to spin as winning.

That point hasn’t yet come. The pain hasn’t been sharp enough, widespread enough or personal enough to shift hardened beliefs. MAGA partisans are too invested in the movement — and the man — for an easy or graceful reversal. This is a “no retreat, no surrender” movement. It can hold two or three contradictory ideas at once, but it can’t admit it was wrong.

It will also take more than a stock market crash or sagging 401(k)s to change minds. Only half of U.S. millennials and less than 10 per cent of gen-Zers have retirement savings. It’s hard to feel the sting of the loss of money you never had or hoped to have. Watching the wealthy take a hit might even be a schadenfreude selling point.

Second, the pain of learning the object lesson of bad economic policy must go beyond electoral change; it must be institutionalized. Congress must rein in the root of the problem, the almost blank-cheque authority it has ceded to the executive, which includes the power to impose tariffs during a “national emergency.”

In 1976-1977, the U.S. Congress, realizing that the country had been in a state of emergency for more than 40 years, passed two acts to reform a president’s use of emergency power. The ineffectiveness of those reforms is on full display today and in the fact that the number and length of national emergencies have increased since the acts to reform presidential emergency powers were passed.

Proposals such as those from the Cato Institute in Washington, D.C., which require Congress to confirm a president’s national emergency by a two-thirds majority within a short period of it being declared, would have prevented the current mess.

Instead of requiring a two-thirds vote to rescind an emergency declaration, having an emergency automatically end if it does not receive a two-thirds confirmation from both houses of Congress would mean that last week’s vote in the Senate to end Trump’s tariffs would have succeeded. There weren’t the votes to rescind the tariffs, but neither were there the votes to confirm it.

• Live Q&A: The election, the trade war and your personal finances
• Jack Mintz: Four big bangs that will get Canada growing again

A change in administration will not return the certainty needed to engage the U.S. in trade talks, nor will ending the current emergency. Canada has already tried appeasing the Americans, and here we are.

Until the law that got us all into this mess is changed, the only deal on the table from the Americans will be the certainty of humiliation in exchange for an illusion.

Carlo Dade is a senior fellow with the Canada West Foundation

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Last week, United States President Donald Trump pushed pause on the sweeping “Liberation Day” tariffs he had placed on more than 50 countries earlier in the month. Stocks had plunged in response to the original plan, spooking investors and Wall Street. But it was activity in the bond market, which threatened to drive borrowing rates higher, that market watchers say prompted the stunning about-face from the White House. Here, the Financial Post explains the bond market and why it sent Trump running.

What happened in the bond market?

Immediately after Trump’s April 2 announcement of sweeping “reciprocal” tariffs on U.S. trading partners, bond yields fell along with stocks, but then yields began to steadily rise, the opposite of what is expected. It was “not normal behaviour,” Douglas Porter, chief economist at Bank of Montreal , said.

The yield on 10-year U.S. Treasuries rose to 4.5 per cent from 3.9 per cent, while the yield on even longer-term bonds — 30-year — briefly traded above five per cent. Bond prices and yields move in opposite directions, and rising yields (lower prices) are an indication that the underlying instrument is considered riskier.

Activity in the bond market after Trump’s tariff announcements suggested investors believed there was a greater risk of both recession and inflation in the U.S. as a result. JPMorgan Chase & Co. chief executive Jamie Dimon warned of both, telling a conference of institutional investors in New York that stagflation was the worst possible outcome and he wouldn’t rule it out.

Who were the sellers?

Some of the selling was understood to be related to investors covering stock market losses and obligations such as margin calls. There have also been reports that some governments may have sold U.S. Treasuries in an effort to put pressure on the government to reverse course on tariffs, which were contributing to concerns about a global economic slowdown.

A term coined in the 1980s, “bond vigilantes,” refers to investors who sell bonds as a form of pushback against fiscal policies they consider inflationary or otherwise irresponsible in an attempt to force a policy reversal.

“It could be a bit of all, but the most common explanation is it’s hedge funds getting out of leveraged Treasury trades,” Porter said.

Did bond sales influence Trump?

Administration officials sought to claim victory with promises that the tariff threat alone was bringing countries to the table to pursue new trade negotiations with the U.S., but Trump acknowledged that he was watching the bond market. He said it was “tricky” and that it appeared “people were getting a little queasy.”

U.S. Treasury Secretary Scott Bessent said their goal was to get long-term rates down, which made the fact that yields were rising “a real problem,” Porter said.

Why is the bond market so important?

U.S. Treasuries are the global lending market benchmark, used by banks around the world to price other instruments, so unusual activity in that bond market can have ripple effects on a host of other markets. With bond yields used to price everything from mortgages to complex derivatives, risk was rising that a broader financial crisis could develop and trigger defaults by financial institutions.

“There is no more important long-term rate than a 10-year U.S. Treasury bond,” Porter said. “Long-term yields also drive mortgage rates, so the backup is a problem for the housing market.”

Moreover, the bond yield represents the interest cost on U.S. government debt, so the higher it goes, the more it eventually costs Washington to service its debt.

Has this happened before?

Yes and no. Many are drawing comparisons to the United Kingdom under the short mandate of British prime minister Liz Truss. In 2022, she announced a mini-budget with large tax cuts, spooking bond markets because the cuts were to be paid for using borrowed money.

The news sent the country’s bond yields soaring and the pound plunging, raising concerns about a widening financial crisis. Pensions were particularly hard hit and left Truss with little choice but to resign, leaving a legacy as Britain’s shortest-serving prime minister.

Porter said there are some comparisons, but Truss’ moment was caused by an expansionary budget that the market viewed as unsustainable. He sees a closer parallel to 2020, when long-term yields on U.S. Treasuries shot up in March at the start of the COVID-19 pandemic as markets were very volatile and mostly weak.

This prompted the Fed to step in, and it has indicated it will do so again “if things get disorderly,” he said. “The difference this time from COVID is that there is a sense that U.S. assets are being shunned, or could be shunned, by foreign investors.”

• 5 questions to ask to protect your portfolio from a trade war
• 'People were getting a little queasy:' Inside story on Trump's tariff pause
• Why U.S. bonds are falling as investors question their haven status

What is the bond market saying now?

Yields pulled back some after Trump agreed to pause the most extreme tariffs for 90 days. But a baseline tariff of 10 per cent remains in place, so yields remain elevated.

“There is clearly still a lot of concern over this highly unusual rise in Treasury yields at a time of equity market weakness and global concern over recession,” Porter said. “Notably, the backup in yields was mostly driven by rising real yields and not higher inflation premiums … indicating a more fundamental drop in demand.”

Avery Shenfeld, chief economist at CIBC Capital Markets, said the backup in bond yields will keep U.S. mortgage rates at elevated levels.

“Housing had been one of the exceptions to an otherwise strong U.S. recovery in the past two years,” he said. “Unless the recent sell-off in bonds reverses, expect these headwinds in the housing sector to remain in place.”

• Email: bshecter@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

The U.S. Federal Trade Commission claims that by acquiring WhatsApp and Instagram, Meta aimed to eliminate competitors who could threaten Facebook's status as the go-to social media platform.

Just two days before the Bank of Canada decides on interest rates and forecasters are split on which way it will go.

The uncertainty is understandable, considering the volatility U.S. President Donald Trump’s tariff war has unleashed on economies, stock markets and central bank policy makers.

According to a Reuters poll taken last week, just over 60 per cent of economists expect the Bank of Canada to hold its overnight rate at 2.75 per cent this Wednesday. Eleven out of 29 expect a cut of 25 basis points.

Markets are also tilted towards a pause with bets on a rate cut now at 32 per cent, down from 40 per cent since Trump’s latest tariff pullback last week.

“The door is certainly open for the bank to trim the policy rate by another 25 bps as a precautionary measure, a view we are leaning toward,” said Marc Ercolao, an economist with Toronto Dominion Bank . “That said, taking a pause is still a potential option.”

Canada’s central bank confirmed in its summary of deliberations recently that the threat of Trump’s tariffs on the economy prompted policy makers to cut the interest rate in March. But since then that threat has eased.

On the president’s so-called Liberation Day April 2, Canada dodged further reciprocal tariffs. Then the countries that were hit with hefty duties, except China, were given a 90-day reprieve after stock markets went into a nose dive last week.

There are two positives for Canada out of this reprieve, said Thomas Ryan, North America economist for Capital Economics. It reduces the likelihood of a U.S. recession, which would have spilled over into Canada and it helped stabilize global stock and bond markets.

However, risks to the Canadian economy remain. Economists now expect it will grow just 1.2 per cent this year and 1.1 per cent the next, down significantly from forecasts made just a month ago, according to the Reuters poll.

Despite the 90-day pause on reciprocal tariffs, the threat still hangs over businesses and households, points out CIBC Capital Markets chief economist Avery Shenfeld.

“How soon will anyone step up to build a plant in Canada to produce exports to the U.S., given that the U.S. has blatantly abrogated its existing free-trade USMCA deal, one that Trump himself negotiated?,” he wrote in a note Friday.

Prime Minister Mark Carney too warned on Friday there were signs the tariff war was impacting global and Canadian economies.

“In the last week there have been a lot of developments in terms of U.S. tariffs policy, reactions from others including China. It really marked tightening in financial conditions … the initial signs of slowing in the global economy,” Carney said.

“Impacts that we are starting to see … unfortunately in the Canadian economy, particularly in the Canadian labour market.”

Making matters even more complicated is inflation data that comes out the day before the Bank of Canada makes its decision.

The consensus forecast is for a March reading of 2.6 per cent, unchanged from the month before, but BMO Capital Market chief economist Douglas Porter thinks it could hit 2.7 per cent, pushing Canada’s inflation rate above the United States’ for one of the few times in the past five years.

“Balancing the opposing forces of inflation and growth will keep the BoC on their toes in the coming months,” said TD’s Ercolao.

One thing economists do agree on is there will be more cuts to come, even if the Bank of Canada does not trim its rate this Wednesday.

More than half the economists polled by Reuters predict two more rate cuts by the end of the third quarter, taking the rate to 2.25 per cent.

Others like Capital Economics and BMO see the rate falling even lower to 2 per cent.

 Sign up here to get Posthaste delivered straight to your inbox.

The trade war has not shown up in hard data, but it appears to be doing a number on the soft. The University of Michigan Consumer Sentiment Index for April fell to the second lowest since data began in 1978, and the percentage of respondents expecting unemployment to climb over the next 12 months hit its highest since the Great Recession in 2008-09, said Jocelyn Paquet, an economist with National Bank of Canada.

Rising inflation expectations are likely to grab the attention of policy makers. The median consumer see prices rising 6.7 per cent over the next 12 months, the most since October 1981.

At the same time U.S. households expect the worst deterioration in their real income in the history of the survey, said Paquet.

 

• Earnings: Goldman Sachs Group Inc. PrairieSky Royalty Ltd.

• It’s time for Canada to seize opportunities that play to its strengths, says RBC CEO
• Awaiting further rate cuts before refinancing your mortgage? Better to act now
• Bond vigilantes are back raising the spectre of an American face-off

Allison is single, 38, and considers herself a “forever renter.” She has maxed out her tax-free savings account and wonders if she should open a registered retirement savings plan (RRSP) or invest in a non-registered investment account? If RRSP is her route, what is the best investment strategy. FP Answers goes over the options.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course). 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.

Financial Post on YouTube

Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

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

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at  posthaste@postmedia.com .

• Canada will end up more tied to U.S. once the tariff dust settles
• Chances of U.S. recession rise to 60%, likely dragging Canada along

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here

Just north of downtown Flint, Mich., is building known for its rich history here of the American automobile industry. The factory, the birthplace of General Motors, still stands as a beacon of innovation. 

Growing recession risks to Canada from the U.S.-led trade war will push the Bank of Canada to cut interest rates at least twice more this year, although a majority of economists said policymakers will leave them unchanged on Wednesday.