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The Weekly Bottom Line 

Our summary of recent economic events and what to expect in the weeks ahead.

Date Published: July 11, 2025

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Canadian Highlights

  • The tariff roller coaster rumbled on this week with Canada receiving a tariff letter from President Trump announcing a higher 35% tariff rate beginning August 1st. 
  • The market response to the Canadian news has been muted, and rightfully so, as hope for negotiations persists. 
  • The labour market offered some good news this morning, with the unemployment rate falling back to 6.9%, on healthy employment gains. 

U.S. Highlights

  • Trade tensions heated up this week, as President Trump announced higher tariffs on 23 trading partners as well as a 50% tariff on copper imports as of August 1st. 
  • If implemented, the combined announcements would add over 2 percentage points to the U.S. effective tariff rate, bringing it to a near century high of 17%. 
  • Minutes from the June 17th-18th FOMC meeting showed a growing divide among policymakers on when to resume rate cuts. A September rate cut is currently 63% priced in by Fed futures markets.

Canada – Good News, Bad News

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Chart 1 shows the monthly employment and labour force changes. The chart shows that for the first time since January Canadian employment rose by more than the labour force.

The tariff roller coaster rumbled on this week with Canada among the list of countries receiving a tariff letter from President Trump. A higher tariff rate of 35% is supposed to take effect August 1st, a date that comes after the one month deadline Prime Minister Carney and President Trump outlined at the G-7 meeting in June. The President also announced a new 50% tariff on copper, and a delay in the threatened pharmaceutical tariff. 

The market response to the Canadian news has been muted, and rightfully so as a lot remains unclear. The 35% rate is above the current 25% rate on non-USMCA compliant goods from the fentanyl-related tariffs. However, further muddying the water are emerging reports that USMCA compliant goods might still be eligible for duty free access to the U.S., blunting some of the pain of the higher rate. 

Any carve-out is material. Although the top-line tariffs are still high, and together with the sectoral tariffs, are impacting the flows of goods to the U.S., many products (almost 60%) that crossed the border were USMCA compliant in May. 

Ultimately, where the final rate lands is still an open question. The President continues to emphasize room for negotiation, and talks are ongoing. Unfortunately for the Canadian economy, uncertainty abounds amid the multitude of different tariff rates, deadlines and exemptions. Steely patience seems to be a prerequisite as the deadline for a deal approaches.

Chart 2 shows the monthly percent changes in core goods and core goods excluding automobile prices. The chart shows that when automobile prices are excluded core goods price growth has been more muted.

For Canadians tired of the roller coaster, the labour market brought good news this week. Employment growth popped, outstripping the ongoing strenght of gains in the labour force, to bring the unemployment rate back down to 6.9% (Chart 1). The gains were healthy and broad based, with the private sector leading the way. Even emphasis on part-time job gains this month can’t gloss over the fact that 13k full time positions were added, building on the 58k gain last month, and continuing their recovery from the losses in February and March. 

So this is a week of two opposite signals. The tariff threat looms with a new August 1st deadline, but the labour market has shown some verve after the initial shock of uncertainty and fear. A healthier than expected labour market does give the Bank of Canada some additional breathing room, something markets have responded to, now expecting only one cut by the end of the year. 

That said, the primary focus remains on inflation, and we will be getting the next iteration of the Consumer Price Index report next week. Canadian tariffs on U.S. goods have targetted food and beverage items, categories that have seen large price gains. However, core goods prices (excluding automobiles) have registered more tepid growth (Chart 2). The name of the game will be looking for hints of further tariff pass through to prices, and whether they seem persistent of temporary.

Andrew Hencic, Director & Senior Economist | 416-944-5307

U.S. – Trade Fireworks in July

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Chart 1 shows the US effective tariff rate dating back to 1915. If this week's announced measures come into effect on August 1st, the effective tariff rate would rise to 17.2% or the highest level in nearly a century. Trade data is reported by the Census Bureau. Effective tariff rates are calculated by TD Economics.

Financial markets were jittery to start the week, with the 90-day delay on the April 2nd “reciprocal tariffs” set to expire on Wednesday. While President Trump ultimately extended the deadline for another few weeks, he simultaneously ratcheted up trade threats on various fronts. He announced a 50% tariff on all copper imports, raised the tariff rate on Brazil to 50% and Canada to 35%, all effective August 1st. For Canada, the details remain sparse, but it’s assumed that all exports that are USMCA complaint – which is just under 60% of goods – would remain exempt from these tariffs. In addition, the administration sent letters to 21 other countries, including larger trading partners like Japan and South Korea, also threatening significantly higher tariffs come August. In total, the 23 countries put on notice account for $827B (or 25%) of annual U.S. imports – after accounting for USMCA compliance. Combined, these additional tariffs would raise the effective tariff rate by 2.2 percentage points if they come into effect August 1st, bringing it to 17%, or the highest level in nearly a century (Chart 1). 

Investors appear to be taking the latest trade escalation in stride. U.S. equity markets briefly hit a new record high on Thursday, but then retraced on Friday in response to President Trump’s tariff threats on Canada. The S&P 500 looks to end the week 0.4% lower but is still up 6% on the year. Meanwhile, longer-term Treasury yields were a touch higher on the week, despite another healthy 10-year Treasury auction on Wednesday. As of the time of writing, the 10-year sits at 4.41%. 

Chart 2 shows the one-year ahead inflation expectations as reported in the New York Federal Reserve's Survey of Consumer Finances. Inflation expectations fell 0.2 percentage points in June to 3% - returning to its pre-tariff levels as of January 2025. Data is reported by the New York Federal Reserve.

But the recent calm that has descended over global financial markets feels eerily tenuous, particularly amidst the ongoing shifts in trade policy and Q2 earnings season set to kickoff next week. Last quarter, much of the guidance companies were providing was purely speculative, as tariff policies were only in the early stages of being rolled out and were also changing on an almost daily basis. However, now that the tariffs have been in place for some time, companies are likely in a better position to gauge their impact and provide updates to earnings guidance for the second half of the year. 

With the inflation impact so far proving more subdued than previously expected, there’s been a growing divide among FOMC members on when to resume rate cuts. Minutes from the June 17-18 meeting released on Wednesday showed that while most committee members favor delaying cuts until there’s more certainty on the inflation and labor market impacts, recent speeches suggest that two board members – Governor Waller and Bowman – support cutting rates as early as July. 

This puts next week’s CPI inflation release under the spotlight. We expect the June CPI report to show inflation having strengthened, with both goods and services price pressures having heated up relative to May. But at this juncture, the uptick is unlikely to unnerve policymakers, particularly with inflation expectations remaining well anchored. According to the New York Fed’s Survey of Consumer Expectations, one-year ahead inflation expectations fell to 3.0% in June – returning to its pre-tariff levels (Chart 2). In our view, this supports the Fed remaining on the sidelines until at least September. 

Thomas Feltmate, Director & Senior Economist | 416-944-5730

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