Market Wire: Trump Raises Tariffs. Again.

President Donald Trump increased trade duties on some Canadian goods this evening, signing an executive order that will raise so-called “fentanyl tariffs” to 35 percent from the 25 percent level set in early March. In a “fact sheet” laying out the measures, the White House said “Canada has failed to cooperate in curbing the ongoing flood of fentanyl and other illicit drugs, and it has retaliated against the United States for the President’s actions to address this unusual and extraordinary threat to the United States… In response to Canada’s continued inaction and retaliation, President Trump has found it necessary to increase the tariff on Canada from 25% to 35% to effectively address the existing emergency.”

Canadian Prime Minister Mark Carney had previously warned that tariff negotiations were progressing slowly, and were ultimately unlikely to result in the complete unwinding of US trade levies. This morning, Trump posted on social media "Wow! Canada has just announced that it is backing statehood for Palestine. That will make it very hard for us to make a Trade Deal with them.”

The Canadian dollar tumbled on the release, briefly falling almost 30 basis points, but is now recovering territory as traders take a more nuanced view on the longer term economic effects.

The increase, which will go into effect at midnight, does not apply to products that are exempted under the United States-Mexico-Canada free trade agreement, and does not stack on top of sectoral tariffs on steel, aluminum, auto parts, and other products, meaning that the effective average rate on Canada’s exports should land just above the 5-percent mark, leaving the country in a fairly advantageous position relative to its global peers.

Under separate actions, the Trump administration said imports from Switzerland would be taxed at a 39-percent rate, South Africa at 30, Taiwan at 20, Vietnam at 20, Cambodia at 19, Thailand at 19, Malaysia at 19, Indonesia at 19, and Venezuela at 15, along with many others.

Mexico escaped a serious increase. Following a call with Mexican President Claudia Sheinbaum earlier today, the president said he would extend “the exact same Deal as we had for the last short period of time,” for another ninety days, noting “The complexities of a Deal with Mexico are somewhat different than other Nations because of both the problems, and assets, of the Border".

Currency markets are reacting with remarkable aplomb, suggesting that tonight's actions were largely priced in. But we suspect that the true costs of America’s isolationist turn have yet to make themselves felt, and expect renewed softness in the dollar—and in financial markets more broadly—as domestic demand falls in the months ahead.