Posthaste: Casualties of the tariff war are showing up on both sides of the border, say economists

We’re about six months into

Donald Trump’s

tariff war with no endgame in sight.

U.S. Treasury Secretary Scott Bessent told Nikkei Asia earlier this week that the United States expects to largely complete trade negotiations by the end of October.

In the meantime, global trade is slowing, businesses remain locked in uncertainty and the economic damages are mounting in both the U.S. and Canada, say economists.

With

U.S. tariffs

running at between 15 and 25 per cent in most economies, Capital Economics expects

global trade

to slow significantly over the next two years.

They see real world goods trade slowing from 2.4 per cent in 2024 to about 2 per cent this year and 1 per cent in 2026.

That’s assuming a 15 per cent tariff, but with current policies putting the tariff rate at about 17 per cent the hit to global trade could be even greater, they said. Sectoral tariffs on such things as pharmaceutical goods would add more pressure.

Closer to home, casualties of the trade war are showing up on both sides of the U.S.-Canada border, say

economists with BMO Capital Markets.

In the United States, the strain on the economy that was first seen in “soft data” like consumer sentiment, is now showing up in the hard data, said BMO senior economist Sal Guatieri.

The weaker-than-expected jobs numbers that led Trump to

fire the commissioner of the Bureau of Labor Statistics

 this month is just one example.

Overall the pace of the U.S. economy is slowing and BMO expects that under an effective tariff rate of about 18 per cent, gross domestic product will lose a full percentage point of growth this year.

These duties will bring in almost $400 billion in annual revenue for the government, but will increasingly be borne by consumers. Businesses have so far been reluctant to pass on the added costs but they can’t absorb big losses forever, said Guatieri.

BMO expects

U.S. GDP growth

to come in at about half of last year’s rate at 1.5 per cent.

In Canada, the tariff regime has been made more manageable thanks to exemptions under the

Canada-United-States-Mexico Agreement

, which is why the pressure is on to maintain this deal when it comes up for review.

“If the U.S. were to walk away from the deal after providing six months’ notice, Canada’s economy could face a deep downturn,” he said.

As it is, deferred business investment and a drop in exports of steel, aluminum and autos, which face their own stiff tariffs, will likely cause the economy to contract in the second quarter. BMO does not think we are headed for a

technical recession

, but growth will slow to 1.3 per cent this year and 1.4 per cent next.

The unemployment rate is expected to climb to 7.3 per cent by the end of the year.

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

Canadians continue to give travel to the United States the big thumbs-down. Return trips by Canadian residents from the U.S. by road fell almost 37 per cent in July from a year ago,

Statistics Canada said Monday.

Return trips by air from the States fell 25.8 per cent.

Many Canadians are boycotting the U.S. because of anger over the tariff war and comments by President Donald Trump about Canada becoming the 51st state. Others are concerned Canadians visiting the U.S. could get caught up in Trump’s immigration crackdown.

• Hudson’s Bay and B.C. billionaire Ruby Liu have until today to file court documents responding to landlords and one of the department store’s leading lenders who want the retailer to end a deal to sell 25 of its leases to Liu.
• Today’s Data: United States consumer price index, NFIB Small Business Optimism, Canada building permits
• Earnings: CAE Inc., Cineplex Inc., Peyto Exploration & Development, Superior Plus Corp.

• Canada could be trade winner as U.S. tariffs undershoot global competitors by wide margin, says report
  
• Financial market expects Bank of Canada interest rate to fall to 2.25% by year-end
  
• Trump put a tariff on gold — or did he? What you need to know about the bullion confusion

Underwater on your home? Selling now should be your last resort. In his return to the Financial Post, real estate columnist Garry Marr looks at what a homeowner who bought at the top of the pandemic peak should do in a market that has finally come off the boil.

Read more

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

.

• Trump hiked Canada’s tariff rate to 35%, but just who’s paying it remains a mystery
• Canada could be trade winner as U.S. tariffs undershoot global competitors by wide margin

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