The dumbest trade war

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   By Guest Blogger Ryan Lewenza

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Last month the Wall Street Journal, a bastion for conservative and free market principles, penned an editorial excoriating President Trump and his harebrained tariffs. The title of the editorial was, “The Dumbest Trade War in History”, and it was scathing. Surprising for a business newspaper owned by Rupert Murdoch.

They highlighted the interconnected North American auto industry and supply chains. They noted that the average vehicle made on the continent goes back and forth borders a half dozen times and therefore, a 25% tariff would have devastating consequences for the sector, the broader economy and on inflation. I grew up in Windsor, ON and in a big auto family, so I know a bit about this.

The WSJ followed this up with another blistering article this week titled, “Trump Takes the Dumbest Tariff Plunge”, and noted that these tariffs could add $9,000 to the cost of an SUV and $8,000 for pickup trucks. They asked the question; how would this help lower prices for middle America?

Finally, their editorial finished with this line, “But if a North American trade war persists, it will qualify as one of the dumbest in history.” We agree and therefore were shocked when Trump, after multiple threats, followed through and announced the draconian 25% tariffs on all imports coming from Canada and Mexico, and a 10% tariff on Canadian energy.

Now that the tariffs are here, the question is, how long will they remain in place?

I’ve been clear and consistent that I didn’t see Trump following through with the tariffs (I was wrong) and if he ends up proceeding with them that they won’t remain indefinitely (we’ll see). I still think he’s going to reverse course and ultimately lift them and see four key supports for this.

First, is the economic hit that the tariffs are going to have on their economy. Yes, it will hurt us more given our size and that we’re an exporting nation, but this is going to hurt their economy too. We’ve already seen consumer confidence drop a lot as a result of all the chaos, which could weigh on consumer spending. US exports will take a hit from the Canadian and Mexico retaliatory tariffs.

The higher prices for lumber, oil, and potash prices will lead to higher costs for US companies, which will weigh on earnings and likely lead to job losses. Alcoa said the tariffs could cost 100,000 jobs and we are likely to see job layoffs at the US car companies. Overall, it’s estimated the tariffs could shave off roughly 0.5-1% of US GDP growth.

So, a slowdown in the US economy, as a result of these dumb tariffs, could cause Trump to reverse course.

US consumer confidence nosedives in Jan-Feb

Source: Bloomberg, Turner Investments

Second, the tariffs will lead to higher inflation. Treasury Secretary, Scott Bessent, recently said that the tariffs won’t lead to higher inflation since China will just eat the tariffs. This is what Trump’s trade advisor, Peter Navarro, keeps saying and it’s not accurate. Today oil, aluminum and potash prices are more expensive for US consumers and companies. US gasoline prices are going to rise as a result of the tariffs.

We’ve actually started to see inflation tick-up even before the announced tariffs. US inflation bottomed at 2.4% yoy last fall and currently stands at 3%. It doesn’t take a Phd in Economics to know that when you slap on a tariff on car parts, aluminum or oil, that some or all of these tariffs will flow through to consumers and businesses through higher prices.

Yes, some companies will eat the tariffs, but there is almost no chance this won’t lead to higher inflation, despite what Peter Navarro keeps parroting.

US inflation trending up, even before the tariffs were enacted

Source: Bloomberg, Turner Investments

Third, is the stock market. The Dow Jones lost 1,300 points in two days following the tariff announcement. If markets keep selling off this could force Trump to reverse course since he sees the stock market as a barometer of his success. Some are saying it could take a 10% correction before he blinks. From the recent peak that would put the S&P 500 at 5,529 and currently the S&P 500 is at 5,778.

CIBC economist, Benjamin Tal, recently put out a note on Trump’s ‘kryptonite’ and highlighted some of these factors that could cause him to pause or reverse course. I believe this is Trump’s strongest kryptonite and why Trump could reverse course in the coming weeks/months.

US markets shed all of Trump bump gains since November

Source: Stockcharts.com, Turner Investments

Finally, are his approval ratings. Trump is all about ratings and wants to be liked and adored. If these tariffs start weighing on the economy and markets, then his approval ratings will fall, and this could cause him to reverse course. Already his approval ratings have fallen 2 points since January.

Trump’s approval ratings are starting to drop

Source: fivethirtyeight

Things are so erratic and are changing by the hour, but as of the completion of this blog, Trump has reversed course again, delaying the tariffs for US auto companies for another month, so hopefully, he’s starting to understand the implications of these tariff decisions (and seeing the stock market decline). And hopefully, he’s a good enough businessman to understand that higher prices will lead to higher interest rates, putting the economy and markets at risk.

And hopefully, god willing, he’ll realize Canada is not the enemy here, and there are lots of benefits of having a closely interconnected economy, with close allies like Canada.

But I wouldn’t bet my house on this.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

Source: https://www.greaterfool.ca/2025/03/08/the-dumbest-trade-war/