Featured Insights


President Trump to impose 25% tariffs on all steel and aluminum imports

By RBC Thought Leadership
Published February 10, 2025

The U.S. president said he would apply tariffs on Monday and announce "reciprocal" tariffs on countries that impose tariffs on U.S. goods likely within a couple of days. Canada is the largest supplier of both metals to the U.S. It comes a week after Trump paused plans to put 25% tariffs on imports from Canada and Mexico. He put 25% tariffs on steel and 10% on aluminum from Canada during his first presidency but lifted it a year later.


Central banks in a turbulent economic landscape

By Jason Daw, Head of North America Rates Strategy
Published February 10, 2025

In the latest edition of Macro Minutes, recorded on February 4, 2025, RBC Capital Markets' macro and market strategists delve into the significant market developments that unfolded over the weekend and at the start of the trading week. The discourse was primarily driven by President Trump's announcement of tariffs on Canada, Mexico, and China, with subsequent postponements for Mexico and Canada, while signaling potential tariff impositions on the EU. The episode provides an in-depth analysis of central bank activities in light of these tariff announcements, as well as insights into the non-tariff fundamentals that are influencing policy decisions. The strategists discuss the Federal Reserve's recent halt in its rate reduction cycle, the Bank of Canada (BoC) and the European Central Bank (ECB)'s respective 25 basis point cuts, and the market's expectation for the Bank of England (BoE) to potentially follow suit later in the week.

Click here for the full transcript.


Navigating economic challenges: Canada's resilience and opportunities amid U.S. tariffs

By Frances Donald, RBC Economics
Published February 5, 2025

After tariffs were delayed, RBC’s Chief Economist Frances Donald spoke with Ram Amarnath, Co-Head of Global Financial Sponsors and Head of Canadian Diversified Industries at RBC Capital Markets, about the potential impact of 25% tariffs on the Canadian economy and what corporations, investors and policymakers in Canada and the U.S. need to think about in the weeks and months ahead.

Read below for an excerpt from the Strategic Alternatives podcast.

Amarnath: Given tariffs are now delayed, how does that change the way you're thinking about this situation? What do you think we'll see over the next month?

Donald: One of the challenges we hear is that when the first Trump administration put tariffs in place in 2018-2019, there was no inflation, no big catastrophe. In part, that's because the magnitude of those tariffs was so small compared to this 25% across the board.

For example, China is about 15% of U.S. trade but Mexico and Canada are a combined 30%, so you’re tripling the ban on imports heading to the U.S. One measure economists use is the average import tariff for Americans. In 2018, that number rose from 1.5% to 3%, and had these 25% tariffs gone through, that number would've gone up to 11%. That's a quadrupling of tariffs that we did not see in 2018-2019.

It's particularly problematic because it targets a manufacturing base that sees products cross borders up to seven to eight times, meaning tariffs hit multiple times. This is the highest increase in an average ratio that we've seen since 1943, so we narrowly avoided (for now) one of the largest shocks in almost 100 years to the North American trading system.

Still, we did learn some things from 2018-2019 – that currency can offset a little bit of the pain; that behaviour of inventory hoarding; that behaviour of uncertainty and how it flows through. Some even point out that by the end of 2019, we were starting to see manufacturing weaken and some prices coming up, but then COVID wiped the slate clean on a bunch of data. So yes, there are lessons we’re using from 2018, but it's really a quarter of what we would've seen if 25% tariffs were enacted.

Click here for the full transcript.


In the media: Economy, rates, equity markets and commodities

By Lori Calvasina, Blake Gwinn, Frances Donald and Helima Croft
Published February 4, 2025

Lori Calvasina, Head of U.S. Equity Strategy, joins Bloomberg: Surveillance TV and Radio to provide her reaction to tariffs sparking turmoil across global markets, impact on pricing, a sector review looking at where there is heightened risk, and more.

Click here to watch Lori in action (9:20 and 20:17)

Blake Gwinn, Head of U.S. Rates Strategy, joins Bloomberg Brief to discuss his takeaways on tariffs, why a potential trade war could pose more of a downside-risk to U.S. growth rather than inflation, and more.

Click here to watch Blake in action (29:58)

Frances Donald, Chief Economist, joins Bloomberg: Surveillance TV and Radio, to discuss how tariffs and President Trump’s threat of using them could ripple through the U.S. economy. She also discusses the price of uncertainty, variations of inflations and impacts, and more.

Click here to watch Frances in action (42:50) and listen to her here.

Helima Croft, Global Head of Commodity Strategy, joins CNBC to discuss how oil prices rising despite tariffs that could dampen global demand, uncertainty around further tariff actions and impacts, particularly for OPEC’s production plans.

Click here to watch Helima in action.


A U.S.-Canada trade shock now in play: First economic takeaways

By Frances Donald, Nathan Janzen, RBC Economics
Published February 3, 2025

Canada is facing its largest trade shock in nearly 100 years. While the landscape evolves, RBC Economics is providing insights and clear analysis with the recognition that the evolution of trade policies, and policymakers’ responses to them, remains highly uncertain.

Below are some of the first economic takeaways. Click here to read the full report.

  1. This is the most significant trade shock since the Smoot-Hawley tariffs of the 1930s, which are widely blamed for exacerbating and prolonging the Great Depression. This far surpasses the 2018 tariffs in magnitude, diminishing the value of that period as a helpful guide for the economic impact ahead.
  2. A persistent tariff of this magnitude is recessionary for Canada. If sustained, our initial analysis suggests that tariffs of this size (based on many assumptions) could wipe out Canadian growth for up to three years, with the largest impacts in the first and second years.
  3. Canadian retaliatory measures (25% on $155bn CAD, phased in) appear designed to asymmetrically challenge the U.S. economy more than the Canadian economy. However, they will still function like tariffs do for any imposing country – by lowering growth and raising inflation on targeted goods.
  4. Canada’s manufacturing sector is most exposed, but the knock-on effects will also matter in many other indirectly exposed industries.
  5. Tariffs are hitting the Canadian economy at a moment during which it is already struggling. Canada is still recovering from a major interest rate shock, and even as the Bank of Canada has cut interest rates by 200bps, the unemployment rate continues to rise, with the country is still operating with excess supply and below full capacity.
  6. Tariffs will also be damaging to the U.S. economy. While the U.S. economy is starting from a relative place of strength (and is far less reliant on trade), it will face a shock large enough to adjust most forecasts downward on growth and upwards on inflation.

Washington strategy: Tariffs and commodity impact

By Helima Croft, Head of Global Commodities Strategy and MENA Research
Published February 2, 2025

Since President Trump’s sweeping electoral victory in November, his advisors made it clear that he would break from past precedents on the use of tariffs. Rather than seeking to rectify trade imbalances, the second Trump administration would use tariffs to achieve pressing foreign policy goals and essentially operate as de facto sanctions. In the Trump World view, a clear benefit of using tariffs versus sanctions is that it does not accelerate the global de- dollarization trend in pursuit of important policy priorities such as curbing cross-border fentanyl flows and migration. Additionally, in our view, the unwinding process for tariffs can be more straightforward than with sanctions, which are often backstopped by or originated in Congress, giving the White House a freer negotiating hand.

While we are not ruling out a relatively swift resolution to the U.S. trade dispute with Canada and Mexico, it is unclear if either have an immediate policy prescription on hand that would result in the unwinding of the 25% tariffs on their U.S.-bound exports, which were imposed under the little-used International Emergency Economic Powers Act (IEEPA). In addition, since this is a nontraditional trade dispute, it is not clear which U.S. officials will have the most sway on the matter. Will Deputy Chief of Staff Stephen Miller and Commerce Secretary pick Howard Lutnick be equally weighted voices, or will the former prove to be the more important principal in this Oval Office conversation, as he already oversees large parts of President Trump’s agenda?

Some key Canadian energy corporates also likely have good lines of communication into the White House through staff members who served in the previous Trump administration. We envision that these individuals will continue to press the case for Canadian energy in Washington. Nonetheless, the broader U.S.-Canada trade standoff looks set to deepen for now even if energy has been granted something of a special situation status, with Ottawa already announcing retaliatory measures on $30 billion worth of U.S. goods.

Finally, China may actually have an easier road ahead than Mexico and Canada. There may have been a determination that the economic cost of a full-blown trade war with Beijing may be too calamitous. In addition, in our meetings in Washington, it was suggested that China may be able to placate President Trump by offering to make a sizable purchase of U.S. goods, including aircraft, soybeans, and natural gas – LNG in particular may feature, given the President’s early actions on LNG approvals and declaring an energy emergency. In return, China might seek to extract a pledge that the U.S. will not intervene in a China-Taiwan confrontation. While such a pledge might rattle some members of Congress, it would potentially align with the increasingly ascendant JD Vance view that the U.S. needs to pare back its overseas military and financial commitments.

To access the full report, contact your RBC representative.


Global oil pricing stress test

By Brian Leisen, Global Oil Analyst
Published February 2, 2025

The latest on crude and tariffs:

“Out of all the places that the Trump administration could have shown restraint, Canadian energy was likely the optimal choice. Looking at the potential profitability impact scenarios, a 25% tariff on energy imports would have likely been enough pressure on profitability that physical disruption would have been highly likely.

At 10%, pricing offsets are more manageable, and likely will not require a significant overhaul to physical flows… While we should start to see seasonal upside pressure for gasoline prices, incremental upside from energy tariffs alone is likely ~$0.15/gal.”

To access the full report, contact your RBC representative.


Natural gas quick take: Tariff impact

By Chris Louney, Global Commodities Analyst
Published February 2, 2025

The 10% tariff on energy is still disruptive (versus 25%) to the highly integrated natural gas market in North America, where the U.S. is both a vital supplier and consumer of natural gas via a highly integrated pipeline system between the U.S., Canada, and Mexico. The U.S. is a net importer of gas from Canada, which is where this tariff will bite. Outside of those imports, there are also substantial exports to Canada and Mexico, which bear watching in the case of any escalation to this trade conflict. On balance, we think imported gas may absorb most of the price impact.

While Mexico is the clear net consumer of U.S. gas, Canada is the clear net supplier. In fact, Canada is the only significant non-domestic supplier of natural gas to the United States, at over 2.9 Tcf in 2023, and 2.8 Tcf through November in 2024 (up 7% y/y); this is where the tariffs bite. The U.S. also supplies gas to Canada, about 1 Tcf in 2023 and just under 0.9 Tcf through November 2024. There is a regional split where the U.S. supplies gas mostly to eastern Canada and imports from western Canada, but on balance the U.S. is a clear net importer in any case.

In terms of those volumes flowing from Canada to the United States, we think that they will continue to flow, at least for now, because if they did not, they would either have to be injected into storage or not produced – the latter of which would take time and have other consequences – and LNG Canada will eventually provide a partial release valve. Affordable Canadian gas is an attractive and important source for U.S. consumers, and some market participants believe tariffs are already factored into the market for Canadian gas prices.

On balance, however, we think Canadian gas prices will absorb at least some if not most of the price impact and that flows will continue. However, this is highly unlikely to lower U.S. gas prices and if there is an impact, it would be to raise U.S. natural gas prices for U.S. consumers.

To access the full report, contact your RBC representative.


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