Canada-U.S. trade talks collapse as new tariffs take effect
Negotiators from both countries had been working toward a trade deal throughout the week, after a three-day extension to the original August 19th deadline was reached. Prime Minister Mark Carney said talks broke down over late-stage disagreements, including a last-minute U.S. push to exempt medium and heavy trucks from auto-tariff relief, along with demands that would have restricted Canada’s ability to pursue trade agreements with other countries and weakened protections for Canadian language, culture, and sovereignty. The lack of a trade deal being reached has resulted in 50% tariffs on roughly C$28 billion of Canadian exports taking effect August 22nd. Canada said it would suspend trade talks and respond with its own dollar-for-dollar retaliatory tariffs beginning September 8th.
Why this matters: The tariffs and planned retaliatory measures may intensify trade uncertainty, add further pressure to already elevated inflation, and complicate the outlook for future Canada-U.S.-Mexico Agreement (CUSMA) negotiations. Adding to the uncertainty, U.S. officials have indicated they may respond further if Canada proceeds with its retaliatory tariffs, raising the risk of continued escalation. Markets will be watching for the specifics of Canada’s retaliatory tariff list and any signals of a path back to the negotiating table in the weeks ahead.
Canadian inflation firms slightly in July, keeping rate hike possibility alive
Canada’s CPI rose 3.0% year over year in July, up from 2.8% in June and above consensus expectations of 2.9%. The increase was broad-based, with six of eight major categories accelerating, led by transportation costs as gasoline prices rose 25.7% year over year. Some relief came from shelter and food inflation, which both eased during the month. Core inflation measures also surprised slightly to the upside, though they remain close to the BoC’s target range.
Why this matters: The data reinforces the view that inflation progress remains uneven, keeping the possibility of further BoC tightening on the table. Markets modestly increased expectations for future rate hikes following the release, and the report supports the broader narrative that policymakers may remain cautious as they assess whether recent strength in economic activity and employment could translate into more persistent inflation pressures.
| Index† | Change (%) | Index Level | |||
|---|---|---|---|---|---|
| Week | MTD | YTD | 1 Yr | ||
| Treasury Bill | 0.04 | 0.12 | 1.42 | 2.36 | 194 |
| Canadian Bonds | -0.45 | -0.53 | 0.12 | 2.36 | 1,201 |
| Canadian Equities | -0.27 | 4.05 | 17.11 | 33.62 | 36,620 |
| U.S. Equities | -1.39 | 2.55 | 12.93 | 21.87 | 7,674 |
| International Equities | -0.53 | 2.31 | 14.67 | 22.43 | 3,244 |
| Emerging Market Equities | 1.24 | 3.50 | 24.46 | 39.49 | 1,722 |
| European Equities | -0.54 | 1.03 | 13.59 | 20.89 | 219 |
| Currencies† | Change (%) | Exchange rate | |||
|---|---|---|---|---|---|
| Week | MTD | YTD | 1 Yr | ||
| C$/US | 0.83 | 1.89 | -0.26 | 1.08 | 0.73 |
| C$/Euro | -0.13 | 0.53 | 0.27 | 0.42 | 0.62 |
| C$/Pound | -0.02 | 0.60 | -1.55 | -0.67 | 0.53 |
| Commodities (US$)† | Change (%) | Price | |||
|---|---|---|---|---|---|
| Week | MTD | YTD | 1 Yr | ||
| WTI Crude Oil ($/Barrel) | 6.86 | 6.84 | 52.87 | 39.92 | 87 |
| Gold ($/oz) | 5.48 | 13.97 | 4.07 | 32.86 | 4,681 |
Treasury Bill is represented by the FTSE Canada 60 Day T-Bill Index (C$), Canadian Bonds represented by the FTSE Canada Universe Bond Index (C$), Canadian Equities represented by the S&P/TSX Composite TR Index (C$), U.S. Equities represented by the S&P 500 TR Index (US$), International Equities represented by the MSCI EAFE GR Index (US$), Emerging Market Equities represented by the MSCI EM GR Index (US$), European Equities represented by the MSCI Europe Index (€). It is not possible to invest directly in an index. Assumes reinvestment of all income and no transaction costs or taxes.
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