Latest / Trend Watch / Episode 54: Trade Wars in History and Canada’s Political Shake-Up

Transcript

Episode 54: Trade Wars in History and Canada’s Political Shake-Up · Trend Watch

0:04
Ready to take a deeper look at where history,
0:07
politics,
0:08
and economics all intersect?
0:10
SPEAKER_00: Well then, you've come to the right place.
0:13
SPEAKER_00: Each week,
0:14
SPEAKER_00: here's where we pull back the headlines and focus on the big trends,
0:18
SPEAKER_00: the stuff that actually shapes our future.
0:21
SPEAKER_00: Through the noise, we focus on the signal.
0:24
SPEAKER_00: I'm your host, Neil Howe, and this is Trend Watch.
0:30
SPEAKER_00: Today is March 12th, 2025, and this is Trend Watch.
0:35
SPEAKER_00: Welcome back, everybody.
0:36
As usual,
0:37
I have on my fellow analyst,
0:39
Christian Ford,
0:39
who I understand is now down in Florida.
0:42
SPEAKER_00: So, Christian, how was your week?
0:44
SPEAKER_00: It's been pretty good.
0:45
SPEAKER_00: That's right.
0:46
SPEAKER_01: I'm in Naples for the week working here.
0:48
SPEAKER_01: What can I say, Neil?
0:50
SPEAKER_01: The weather is beautiful.
0:51
SPEAKER_01: I've been watching an alligator outside of my window all day.
0:54
SPEAKER_01: Can't complain.
0:55
SPEAKER_01: Can't complain.
0:56
SPEAKER_00: You're on the Gulf of America.
0:57
SPEAKER_00: Yes, that's right.
0:59
SPEAKER_00: I mean, these are American alligators.
1:01
SPEAKER_00: I like that.
1:02
SPEAKER_00: When I go there,
1:02
SPEAKER_00: I'm usually on the other side of Florida,
1:05
SPEAKER_00: on the Keys side,
1:06
SPEAKER_00: but I kind of like it.
1:08
SPEAKER_00: This is a beautiful time to be there.
1:10
SPEAKER_00: So have fun while you're there.
1:13
SPEAKER_00: Yes.
1:14
SPEAKER_00: You know, a little time away, away from the world.
1:18
SPEAKER_00: As always,
1:18
SPEAKER_00: let me remind all of our listeners,
1:21
SPEAKER_00: if you like this podcast,
1:23
SPEAKER_00: please go ahead,
1:24
SPEAKER_00: share it with your friends and family,
1:26
SPEAKER_00: repost it on social media.
1:28
SPEAKER_00: From now on, we only occasionally...
1:30
SPEAKER_00: Keep these episodes free.
1:32
SPEAKER_00: Let's get into today's podcast.
1:34
SPEAKER_00: We have plenty going on around the world,
1:37
SPEAKER_00: and I want to go down our main points,
1:40
SPEAKER_00: and then we'll get back to the market.
1:42
SPEAKER_00: And looking at domestic news, we have the following.
1:47
SPEAKER_00: Yesterday,
1:48
SPEAKER_00: Trump added a global 25% tariff on all steel and aluminum imports,
1:55
SPEAKER_00: prompting retaliatory tariffs from Canada and the EU.
2:00
SPEAKER_00: On Tuesday,
2:01
SPEAKER_00: the Department of Education terminated over 1,300 federal employees,
2:06
SPEAKER_00: reducing the DOE's workforce by nearly 50%.
2:11
SPEAKER_00: And also,
2:12
SPEAKER_00: I should say,
2:13
the House Republicans passed a continuing resolution by a 27 to
2:18
2014 vote to keep
2:20
the government funded basically at current levels until the end
2:23
of September.
2:25
SPEAKER_00: We're going to see what the Senate does with that resolution.
2:28
with that CR in,
2:30
well,
2:31
I guess over the next,
2:32
you know,
2:33
today,
2:33
tomorrow,
2:33
right?
2:34
SPEAKER_00: And finally,
2:34
SPEAKER_00: the recent deportation case of Mahmoud Khalil,
2:39
a recent graduate from Columbia University who participated in
2:42
pro-Palestinian demonstrations,
2:45
SPEAKER_00: has ignited a debate over free speech and the rights of immigrants.
2:49
And turning abroad,
2:51
Mark Carney,
2:52
former governor of the Bank of Canada and the Bank of England,
2:56
has been elected as the new leader of Canada's Liberal Party
3:00
and in a few days will
3:04
SPEAKER_00: succeed Justin Trudeau as Prime Minister.
3:08
SPEAKER_00: While Trump tries to bring Putin to the negotiating table,
3:11
Trump has lifted his suspension of military aid to Ukraine
3:16
after President
3:17
SPEAKER_00: Volodymyr Zelensky agreed to a proposed 30-day ceasefire on Friday.
3:23
SPEAKER_00: Poland's Prime Minister Donald Tusk
3:25
suggested the country consider acquiring nuclear weapons in
3:29
light of the growing
3:30
SPEAKER_00: unreliability of the U.S.
3:33
SPEAKER_00: security guarantee.
3:34
Well,
3:36
that's plenty on the table,
3:37
and each of those sort of opens up a lot more stuff,
3:40
right?
3:41
SPEAKER_00: So let's get right into it.
3:42
Let's start with the markets,
3:43
which I think you can say has been a pretty busy week.
3:47
SPEAKER_01: That's right, Neil.
3:48
SPEAKER_01: Well, you did have a positive day.
3:50
SPEAKER_01: The S&P closed up 0.49%.
3:53
SPEAKER_01: But over the last five market days is down 4.16%.
3:58
SPEAKER_01: As for the global Dow, a little similar, not as drastic.
4:01
SPEAKER_01: It's closed up today 0.26%.
4:03
SPEAKER_01: And over the last five days is down 2.13%.
4:05
SPEAKER_01: As for the VIX, that is at 24.23%.
4:06
SPEAKER_01: Yesterday, it was actually over 29.
4:08
SPEAKER_01: So it came down a little bit today.
4:15
SPEAKER_01: And as for the 10-year Treasury,
4:17
SPEAKER_01: that is at 4.321%,
4:20
SPEAKER_01: up four basis points over the last five days.
4:23
SPEAKER_00: Yeah,
4:23
SPEAKER_00: I guess the reason why we had a rebound today,
4:26
SPEAKER_00: as opposed to just,
4:29
SPEAKER_00: you know,
4:30
SPEAKER_00: by the dip,
4:30
SPEAKER_00: I guess there's still echoes of that.
4:32
SPEAKER_00: But also, we had some positive news on Ukraine.
4:35
I think it sort of steadied nerves a little bit to hear about
4:38
Trump raising the
4:41
The the the bar to American aid for Ukraine and the other was
4:45
obviously the CPI report.
4:48
SPEAKER_00: Right.
4:49
SPEAKER_00: Which, you know, I'm not sure how to take that.
4:52
SPEAKER_00: It came in a little low at this point in the economic cycle.
4:57
SPEAKER_00: It's unclear whether that's good or bad news, right?
4:59
SPEAKER_00: Right.
5:00
SPEAKER_00: Good news for the Fed, I guess you'd say.
5:03
SPEAKER_00: I'm looking at the CPI core.
5:05
SPEAKER_00: It went from 3.3 to 3.1.
5:05
SPEAKER_00: That's not exactly begging the Fed, right, to cut.
5:13
SPEAKER_00: But at least maybe it's opening the possibility.
5:16
On the other hand,
5:17
the market really has to think about the entire economy slowing down.
5:21
SPEAKER_00: Right.
5:21
SPEAKER_00: And so you think that on the verges of their consciousness,
5:25
SPEAKER_00: that has to be on their mind as well.
5:27
SPEAKER_00: Right.
5:27
SPEAKER_00: You know, I will say, by the way, on this this this market.
5:31
SPEAKER_00: kind of mini crash we had.
5:32
SPEAKER_00: We're not formally in correction, at least on the SPY.
5:35
I believe we're in correction for the NASDAQ and for some of
5:40
the more limited indexes.
5:42
SPEAKER_00: And remember,
5:42
SPEAKER_00: I went on,
5:43
SPEAKER_00: I think this was about exactly one month ago on Hedgeye,
5:48
SPEAKER_00: and it basically said implied volatility of out-of-the-market options
5:54
SPEAKER_00: was very low and these options are hugely underpriced.
5:57
SPEAKER_00: You remember I said that?
5:58
SPEAKER_00: There's a big opportunity.
6:01
SPEAKER_00: And I will say this,
6:03
SPEAKER_00: anyone who was selling for the entire market,
6:06
SPEAKER_00: say for SPY or for any of these indexes,
6:09
what options traders call straddles or strangles with strike
6:13
prices in the delta
6:15
SPEAKER_00: low 40s,
6:16
SPEAKER_00: made a killing,
6:17
SPEAKER_00: right?
6:18
SPEAKER_00: And this is the kind of market where you can do that.
6:20
SPEAKER_00: And I would say to people in the market,
6:23
SPEAKER_00: wait until the VIX goes back down, right?
6:25
SPEAKER_00: Wait until it gets back down under below 15 and try it again, right?
6:31
SPEAKER_00: Because I don't think that this is over, right?
6:36
SPEAKER_00: We live in an era,
6:38
SPEAKER_00: which is where we're going to see over the next few years,
6:41
SPEAKER_00: a lot more unexpected volatility like this.
6:44
SPEAKER_00: And it could get even bigger.
6:47
SPEAKER_00: Otherwise, it's interesting.
6:48
SPEAKER_00: I think a lot of the
6:49
SPEAKER_00: The big indicators on the tips yield,
6:51
SPEAKER_00: the break even,
6:51
SPEAKER_00: a lot of things we follow really haven't changed much over the last week.
6:55
But it's fair to say that a lot of traders were really rattled
7:01
over the past,
7:02
SPEAKER_00: well,
7:02
SPEAKER_00: four days up to this morning.
7:05
SPEAKER_00: Right.
7:05
SPEAKER_00: What kind of indicators do you have?
7:07
SPEAKER_01: Well, it was a pretty slow week, I would say.
7:09
SPEAKER_01: Other than CPI,
7:10
SPEAKER_01: the other big one was the non-farm payrolls,
7:13
SPEAKER_01: which came in at $151,000 for February.
7:16
SPEAKER_01: That was up from January, but still slightly below expectations.
7:21
And I will say,
7:22
Neil,
7:22
we're not seeing yet the full force of the Doge federal
7:26
employee cuts.
7:27
SPEAKER_00: We were seeing a little bit of it, but... Right, right.
7:29
SPEAKER_00: I do think that just given January, February was so messed up,
7:34
SPEAKER_00: Right.
7:35
At least on the CPS front and even a little bit on the payroll
7:41
front in terms of
7:42
annual revisions that it's going to take a month or two before
7:45
we see kind of where
7:46
SPEAKER_00: we are month to month because of that big break.
7:50
SPEAKER_01: And if we go international, I only got one for us.
7:55
SPEAKER_01: We have the Eurozone PMIs for February, the final.
7:58
SPEAKER_01: Manufacturing rose from 46.6 to 47.6.
8:01
It was a little bit better than the preliminary reading,
8:05
but,
8:06
you know,
8:06
still negative.
8:07
SPEAKER_01: And as for services, that fell from 51.3 to 50.6.
8:11
SPEAKER_01: Positive, but not as good.
8:14
SPEAKER_00: Yeah, it's not very good overall, is it?
8:16
SPEAKER_01: No.
8:17
And although I am interested in the fact that the dollar has
8:22
been going down,
8:23
right?
8:24
SPEAKER_00: Right.
8:25
SPEAKER_00: Clearly not because these economies abroad are speeding up,
8:28
SPEAKER_00: maybe just because people aren't so enthusiastic about the market.
8:32
SPEAKER_00: You know, this is maybe investment driven.
8:35
SPEAKER_00: Well, why don't we just dive into the news, right?
8:37
SPEAKER_00: All right.
8:38
SPEAKER_00: We've got a bunch of items domestically.
8:41
SPEAKER_01: That's right, Neil.
8:41
SPEAKER_01: The tariff wars continue.
8:44
Last week,
8:44
we discussed the new tariffs implemented against Mexico,
8:47
Canada,
8:48
and China.
8:48
Now Trump has added a global 25% tariff on all steel and
8:53
aluminum imports.
8:55
SPEAKER_01: In response, the EU said it would add tariffs to $28 billion of U.S.
9:00
SPEAKER_01: goods starting in April,
9:01
and they would add an additional number of tariffs against $19
9:04
billion in China.
9:06
SPEAKER_01: I think that's got to come in mid-April.
9:09
Canada also announced that they are immediately implementing
9:12
25% retaliatory
9:13
SPEAKER_01: tariffs on $21 billion in U.S.
9:16
SPEAKER_01: goods.
9:17
In other news,
9:18
you might have seen there was another back and forth with Canada.
9:21
SPEAKER_01: Trump
9:22
did recently back away from his threat to hit Canada's steel
9:25
and metal imports with
9:27
a 50% tariff after Ontario suspended its 25% surcharge on
9:33
electricity it was
9:34
SPEAKER_01: sending to northern U.S.
9:36
SPEAKER_00: states.
9:36
SPEAKER_00: Right.
9:36
And instead,
9:37
what,
9:38
their guy's going to meet with Howard Lutnick or something like that?
9:41
SPEAKER_00: Yeah, they're going to have their own meeting.
9:43
SPEAKER_00: Yeah.
9:44
SPEAKER_00: I mean, what does this mean?
9:45
Does it mean that Trump is not retaliating for the retaliation or,
9:50
you know,
9:50
what?
9:51
SPEAKER_00: Where's the firebreak here?
9:53
SPEAKER_00: Right.
9:53
SPEAKER_00: Well,
9:53
SPEAKER_01: I think that's the question everyone has,
9:55
SPEAKER_01: that no one's really quite sure where Trump's line is.
9:59
SPEAKER_01: You know,
10:00
I was reading a lot of officials from the EU said one of their
10:03
biggest difficulties
10:04
SPEAKER_01: is they're trying to negotiate,
10:06
SPEAKER_01: but they don't even know who they're supposed to be negotiating with.
10:08
SPEAKER_01: Seems like everyone in the administration has a different opinion.
10:12
SPEAKER_01: The EU officials also said they're going to try to target U.S.
10:15
SPEAKER_01: businesses to really put the pressure on the administration.
10:18
SPEAKER_01: Yeah.
10:19
SPEAKER_00: Well, it may be too that, um, this is a Doug Ford, right.
10:23
SPEAKER_00: Premier of Ontario, right.
10:25
SPEAKER_00: Of a Trump, the closest thing you'll find in Canada to a, a Trump leader.
10:32
SPEAKER_00: And by the way, um,
10:34
SPEAKER_00: This is something I'm sure we'll talk about later.
10:37
SPEAKER_00: Right.
10:37
SPEAKER_00: It may be this may be become a scarce species in Canada soon.
10:42
SPEAKER_00: That is a Trump leaning conservative.
10:45
SPEAKER_00: But that I think we'll talk about a bit later.
10:47
SPEAKER_00: Look, I mean, this is and we're not done.
10:50
SPEAKER_00: Right.
10:50
SPEAKER_00: I mean, there's more of this coming.
10:52
SPEAKER_00: We haven't yet seen what he has in mind for the EU yet.
10:57
SPEAKER_00: Right.
10:58
SPEAKER_00: Aside from this.
10:59
SPEAKER_00: Right.
11:00
SPEAKER_00: Steel and aluminum.
11:01
SPEAKER_00: And it makes it a little bit uncertain for the EU how to respond.
11:05
I guess what they want to do is respond with something that's
11:07
roughly of the same
11:09
SPEAKER_00: magnitude in terms of trade and just sort of weight,
11:12
SPEAKER_00: right?
11:13
SPEAKER_00: Right.
11:14
SPEAKER_00: And the whole idea of retaliating is,
11:16
SPEAKER_00: one,
11:17
SPEAKER_00: to make sure that America feels the pain,
11:19
SPEAKER_00: and the other is to bend the demand-offer curve back in the opposite way
11:25
SPEAKER_00: to counter the advantage in terms of trade for the United States.
11:29
SPEAKER_00: This is sort of,
11:30
SPEAKER_00: you know,
11:30
SPEAKER_00: it's the one thing you learn in economics,
11:33
SPEAKER_00: right,
11:33
SPEAKER_00: in international trade theory that,
11:37
SPEAKER_00: you know,
11:37
SPEAKER_00: you have an optimal tariff of one side can just impose it on the other.
11:41
SPEAKER_00: The other side actually has to go the other way.
11:43
SPEAKER_00: And given,
11:45
SPEAKER_00: you know,
11:45
SPEAKER_00: reasonably well-behaving curves,
11:47
you can sort of push that diagonal line back to its original
11:51
position again.
11:51
SPEAKER_00: Now,
11:53
SPEAKER_00: You know,
11:53
SPEAKER_00: when you have a tariff and then you have a retaliatory tariff,
11:56
SPEAKER_00: you turn that diagonal line back to the same position.
12:00
So the terms of trade are the same,
12:02
but the absolute amount of trade goes way down.
12:04
SPEAKER_00: Right.
12:05
SPEAKER_00: Right.
12:05
SPEAKER_00: Because both ways you have this big tax on it.
12:08
SPEAKER_00: And so the whole advantages of the division of labor.
12:13
SPEAKER_00: right, the comparative advantage of trading diminishes.
12:17
SPEAKER_00: And presumably, as time goes by, the standards of living decline.
12:21
SPEAKER_00: The interesting question,
12:22
SPEAKER_00: I think,
12:22
SPEAKER_00: really is,
12:23
SPEAKER_00: I think,
12:23
SPEAKER_00: and this is the debate within the Trump camp,
12:26
SPEAKER_00: is to what extent is tariffs a targeted response to countries like China,
12:34
which have flooded and invaded certain industries in order to
12:39
get huge volume and
12:40
SPEAKER_00: competitive advantages?
12:42
SPEAKER_00: Think about
12:43
You think about things like aluminum and steel and solar panels
12:47
and stuff like that,
12:48
right?
12:48
SPEAKER_00: Or even in retail, right, where they practice this.
12:53
SPEAKER_00: And to what extent do you regard it increasingly,
12:56
SPEAKER_00: as it seems,
12:56
SPEAKER_00: as just kind of a thing you do on everything,
12:59
SPEAKER_00: right?
12:59
SPEAKER_00: Why not just less trade with everybody?
13:01
The most kind of resonant historical example we have with that
13:07
is after the Great Crash,
13:08
SPEAKER_00: the Smoot-Hawley tariffs of 1930,
13:10
SPEAKER_00: which...
13:13
SPEAKER_00: was regarded by America's trading partners with...
13:17
SPEAKER_00: a great hue and cry of outrage.
13:20
SPEAKER_00: And we saw after that,
13:22
SPEAKER_00: which really characterized the entire Great Depression,
13:24
SPEAKER_00: is a period when the entire world broke into different regions,
13:29
SPEAKER_00: trading regions,
13:30
SPEAKER_00: right?
13:30
The UK,
13:31
after the Smoot-Hawley tariffs,
13:33
installed a system of imperial preferences.
13:37
SPEAKER_00: This is called the Ottawa Agreements of 1932.
13:41
SPEAKER_00: Sort of imagine, you know, Justin Trudeau, right?
13:45
SPEAKER_00: 90 years ago, right?
13:47
And it was signed by the UK,
13:48
Australia,
13:49
Canada,
13:50
India,
13:50
and New Zealand,
13:51
right?
13:52
SPEAKER_00: Well, they were going to trade with each other.
13:54
SPEAKER_00: You know, damn it, if the U.S.
13:57
SPEAKER_00: was going to be like this.
13:58
SPEAKER_00: And then the Dutch followed suit, right?
14:01
SPEAKER_00: Holland had all of this special trade with the Dutch East Indies.
14:05
SPEAKER_00: And then the French followed suit, right?
14:08
SPEAKER_00: And guess who felt outraged and beleaguered?
14:13
SPEAKER_00: The liberals in Japan.