**North America**: Recent increases in tariffs by the U.S. on Canada and Mexico have stirred market volatility and impacted employment. Canadian exports to the U.S. rose significantly, yet job growth remains stagnant, prompting predictions of interest rate cuts by the Bank of Canada amidst ongoing trade intricacies.
This week has been characterised by significant shifts in trade policy between the United States, Canada, and Mexico, leading to market volatility and new economic data that suggest varied impacts on employment and trade balances.
On March 4, the U.S. government enacted 25% tariffs on goods imported from Canada and Mexico, as well as a 10% tariff on energy products from China. This abrupt decision sent ripples through the market; however, the situation quickly evolved, with U.S. officials announcing a temporary exemption for goods compliant with the United States-Mexico-Canada Agreement (USMCA) until April 2. Moreover, the auto sector was granted a one-month reprieve from these tariffs, allowing for some immediate relief for American and Canadian businesses alike.
The offshore moves brought uncertainty to stock markets, with the S&P 500 and Canadian TSX witnessing declines of around 2% as traders reacted to the ongoing developments. In contrast, Canadian government bond yields marginally increased due to eased growth concerns, and the Canadian dollar gained slightly, finishing at 69.6 cents against the US dollar.
As a result of these tariff threats, Canadian businesses responded preemptively, leading to a record-high expansion in exports to the U.S., which rose by 7.5% month-on-month in January. This surge bolstered Canada’s goods trade balance with the United States to more than $14 billion, the highest recorded. Significant growth was noted particularly in the automotive, consumer goods, industrial machinery, equipment, and energy sectors—areas directly affected by the tariff announcements. Since the election of former President Donald Trump in November, nominal exports to the U.S. have skyrocketed by 22%, marking the largest three-month gain on record.
Simultaneously, the Canadian employment landscape faced challenges. February saw negligible job growth, with the unemployment rate holding steady at 6.6%. The labour market was particularly affected by severe snowstorms during the reference week, which contributed to a contraction in the labour force for the first time in seven months. Consequently, around half a million employees experienced reduced working hours, leading to expectations of negative implications for February’s industry-based GDP readings; however, an anticipated rebound in March is expected.
The Bank of Canada is on the verge of potentially lowering interest rates during its upcoming announcement. With market predictions reflecting a 90% chance of a 25 basis point cut—up from just 30% a fortnight ago—analysts expect the Bank will act to mitigate the risks posed by trade tensions despite the domestic economy showing resilience.
In the United States, the job market added 151,000 jobs in February. However, the unemployment rate ticked up from 4.0% to 4.1%. Concerns linger over potential job cut announcements, especially within the government sector, which reported a significant increase in layoffs amidst ongoing issues. Indeed, government sector layoffs were said to drive a surge in job cut notifications that reached 172,000.
The U.S. Federal Reserve is now faced with the challenge of balancing the risks of slowing economic activity against inflation pressures. Though the Fed is expected to maintain current interest rates for the time being, there are growing expectations for discussions around adjustments in the summer, particularly if economic conditions deteriorate due to trade policy uncertainties.
In summary, the past week has highlighted the interconnectedness of trade and employment within North America, with new developments posing both challenges and opportunities for businesses in Canada and the United States. The implications of the current tariff scenarios, alongside fluctuating job data, will remain a focal point for stakeholders as economic conditions evolve.
Source: Noah Wire Services
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