Is US inflation about to skyrocket?
Donald Trump said Thursday his administration would impose sweeping tariffs on imports from Canada and Mexico next week, ending a brief delay that had been in place since the beginning of this month.
In a Truth Social post this morning, Trump said tariffs on Canadian and Mexican goods entering the US would go ahead as planned on March 4, citing continued concerns over illicit drug trafficking from both North American neighbors as justification for the move.
“We cannot allow this scourge to continue to harm the USA, and therefore, until it stops, or is seriously limited, the proposed TARIFFS scheduled to go into effect on MARCH FOURTH will, indeed, go into effect, as scheduled,” Trump wrote.
Financial markets reacted gloomily to the news, with Dow Jones Industrial Average futures turning negative in the wake of Trump’s announcement. Confusion had surrounded the fate of the measures in recent weeks, with Trump’s own advisors previously suggesting decisions on tariffs for all countries would be made after reviewing a study set for release on April 1.
Trump’s Thursday post appeared to be referring to the 25% measures on all Canadian imports – excluding energy, which would be tariffed at 10% – he had threatened until striking a last-minute deal with prime minister Justin Trudeau to avert the tariffs for 30 days on February 3.
Donald Trump’s proposed lumber tariffs could disrupt US home construction, driving up prices and mortgage rates, warns expert Russ Taylor.https://t.co/xSZ8XpHIaK
— Mortgage Professional America Magazine (@MPAMagazineUS) February 25, 2025
Could tariffs cause a spike in US inflation?
Long-term inflation expectations among American consumers have hit their highest level in nearly three decades amid Trump’s proposed tariffs. A February survey by the University of Michigan showed consumers anticipate inflation will jump at an annual rate of 3.5% during the next five to 10 years, with overall consumer sentiment also plunging.
Stephen Stanley, Santander US Capital Markets’ chief US economist, said the Federal Reserve would be keeping a close eye on inflation expectations as it weighs up its approach to interest rates for the months ahead.
“You can bet that Chairman Powell and company will take note of that, and that this further seals the case for the Fed remaining on hold for a while,” he said. “The question is whether President Trump and the administration are paying attention to the souring of consumer moods due to the threat of tariffs.”
How could Trump’s tariffs impact the Canadian economy?
Last month, former Bank of Canada governor Stephen Poloz highlighted the potentially massive shock US tariffs could pose to the Canadian economy, and said Canada would be “a lot less” resilient to a potential economic downturn than during the COVID-19 pandemic.
“We’ve been in a weak spot for pretty well two years now. It’s been masked by high immigration flows, which kind of buries the data,” he said. “So with household spending per household shrinking for the last two years, and we still have quite a lot of people to renew their mortgages… investment’s been really low for a long time. Housing’s been weak. Everything’s been weak.”
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