Derek Holtâs Saturday Night Tariff Thrashing delivers a scathing assessment of the Trump administrationâs abrupt trade war escalation. Holt, Scotiabankâs VP & Head of Capital Markets Economics, dissects the fallout of the February 1, 2025, tariff imposition on Canada, Mexico, and China. His analysis not only captures the immediate policy responses but also sheds light on the deeper economic and political fractures set to unfold.
The Trade Warâs Next Chapter
Holt wastes no time characterizing Trumpâs latest move as a reckless economic assault. âThe Trump administration has launched a trade war,â he writes, bluntly framing the gravity of the situation. The executive order leverages multiple legal provisionsâincluding the International Emergency Economic Powers Act and section 301 of the Trade Act of 1974âcreating a national security pretext for the tariffs.
Specifically, the U.S. imposed:
- 25% tariffs on all Canadian and Mexican imports,
- 10% tariffs on Canadian oil, electricity, and natural gas,
- An additional 10% tariff on China, above existing levels,
- Revocation of the de minimis exemption on U.S. goods shipped to Canada.
The setup is deliberately confrontational: âThere is a provision in the U.S. executive order that will escalate tariffs if Canada responds,â Holt notes, reinforcing that this is not a negotiationâitâs an economic siege.
Canadaâs Response: Retaliation, Not Appeasement
Unlike past Canadian strategies, which often sought to de-escalate tensions, the Trudeau administration wasted no time retaliating. Holt acknowledges the rapid response: "Overall, I have to give credit to PM Trudeau and Team Canada. They were clearly prepared for this and did their homework." The retaliation package includes:
- Immediate 25% tariffs on $30 billion of U.S. imports, targeting a range of goods from alcohol and food to appliances and raw materials.
- Further tariffs on $125 billion in goods in 21 days, allowing businesses time to adjust.
- Potential non-tariff measures, including procurement barriers and critical mineral access restrictions.
This marks a shift in Ottawaâs approach. The governmentâs messaging was clear: âWe will not be pursuing measures that further divide the country,â Trudeau stated, signaling that the burden of retaliation will be evenly distributed across provinces.
Provinces Mobilize for Economic Defense
The response was not limited to federal action. Canadian provinces quickly took matters into their own hands.
- British Columbiaâs Premier David Eby called the tariffs a âdeclaration of economic warâ, announcing bans on U.S. liquor from red states and an acceleration of mining, natural gas, and renewable energy projects.
- Nova Scotiaâs Premier Tim Houston ordered the removal of all U.S. alcohol from state-run liquor stores and doubled tolls for U.S. commercial vehicles at the Cobequid Pass.
- Quebec Premier François Legault vowed to penalize U.S. firms bidding on government contracts, leaving further escalation to the federal government.
Holt underscores that these retaliatory measures reflect a united frontâa rare moment of national economic solidarity. âYou can hear and see it in the responses of Canadian politicians of all stripes and levels of government who are unified around fully retaliating,â he writes.
Economic Fallout: Inflation, GDP, and Trade Disruptions
Holt anticipates swift economic consequences, particularly on inflation and supply chains. He warns that âinflationary supply shocks are coming once again,â reminiscent of the price spikes following Trumpâs first round of tariffs in 2018.
- Consumer Prices: Tariffs on key importsâparticularly food, materials, and manufactured goodsâwill raise prices for Canadians. âThe household struggling with mortgage resets now faces a needless additional worry,â Holt warns.
- GDP Impact: Canadaâs high trade dependency means that escalating tariffs could significantly dent economic growth. Supply chain disruptions could curtail production, while retaliatory measures may weaken cross-border investment.
- U.S. Economic Consequences: Holt points out that American businesses and consumers will also feel the sting. âKey players in the automotive sector are immediately warning of plant shutdowns and the cessation of production,â he notes, highlighting the deeply intertwined nature of North American manufacturing.
Financial Markets: Bond Yields, Equities, and Currency Fallout
Holt suggests that financial markets will react sharply once trading resumes after the Lunar New Year holiday. âI suspect that there will be swift, concentrated market reactions into the Monday open with particular emphasis upon the dollar, CAD, and MXN,â he predicts.
- Bond Markets: Given Canadaâs measured retaliation, Holt sees an increased likelihood of Bank of Canada easingâmeaning lower interest rates. However, deep supply chain shocks could complicate monetary policy.
- Equities: âThe US aluminum industry is urging Trump to exempt Canada from tariffs,â Holt notes, signaling that industries reliant on cross-border tradeâlike metals, autos, and consumer goodsâcould face serious headwinds.
- Currency Markets: Expect heightened volatility in USD/CAD and USD/MXN. Holt suggests that the Canadian dollar will weaken as markets digest trade uncertainty, while Mexicoâs peso could also come under pressure as retaliatory measures escalate.
A Historic Deterioration in U.S.-Canada Relations
Holtâs assessment extends beyond economicsâitâs a referendum on the broader deterioration of U.S.-Canada relations. âUnfortunately, Canada-U.S. relations have sharply deteriorated in breathtaking fashion that I certainly havenât seen in my life or 30-year career,â he states.
This is not just another round of political posturing; itâs a structural shift in North American trade relations. Holt calls on American businesses and consumers to push back: âItâs time for American businesses and consumers to join their Canadian peers to make their voices loud and clear that the path chosen by this U.S. administration is a terribly unwise one with deep ramifications for all.â
Final Thoughts: Economic Consequences and Political Realities
Holtâs analysis makes it clearâthis is not a drill. The Trump administrationâs tariffs have set off an economic chain reaction with unpredictable consequences. Whether the U.S. relents or digs in further remains to be seen, but Holt makes one thing certain: Canada is not backing down.
As the world watches how this plays out, one thing is clearâthe era of stable North American trade is over.
1 Derek Holt, The Saturday Night Tariff Thrashing, February 2, 2025, Scotiabank