Trump's tariffs roil U.S. markets. And that's the reaction that matters
Canada's retaliation is a rounding error compared to the value of the U.S. market dip
Canada can huff, and puff, but if anything's going to blow down Donald Trump's house of tariffs, it's going to be the reaction within the United States.
And there are signs of pushback.
The stock market is turning, economic sentiment is nosediving, the U.S. president's approval is receding, and American lawyers are preparing lawsuits.
Those factors will likely pack more punch in Washington than the $155 billion in counter-tariffs threatened by Canada. To put this number in perspective, it's a fraction of what American stock markets have lost this week.
The president caused an instant swoon with several simple words: "The tariffs — they're all set," Trump said on Monday, confirming a 25 per cent duty on most products was coming today, and that there was nothing Canada and Mexico could say to dissuade him.
Markets replied by quickly wiping out their entire gains for 2025, with the S&P 500 losing 1.76 per cent on the day, triggering hundreds of billions in losses in what Bloomberg's evening newsletter called, "the Trump sell-off."
The drop continued Tuesday morning, with stocks further declining after the opening bell.
After Trump spoke, the index turned negative for the year. Minutes later, the host on Trump's favourite network, Fox News's Martha MacCallum said the market was "freaking out a bit." But that modest single-day decline of nearly two percentage points, and five-point drop month-to-month, is by no means the only grey cloud on the economic horizon.
U.S. consumer confidence has had its sharpest monthly drop since the pandemic in February. Spending is down. The Atlanta Federal Reserve's forecast for this quarter has collapsed into negative territory, raising the heretofore unthinkable possibility of a GDP contraction.
Ripples continued emanating Tuesday in public comments from major American companies. Retail giant Target said it expected to raise prices within days, specifically mentioning Mexican strawberries, bananas and avocados in an interview with CNBC. Electronics retailer Best Buy saw its stock nosedive more than 13 per cent, after warning the tariffs could darken its revenue projections.
In an effort to quell the storm, Trump administration officials acknowledged there could be some short-term pain from these and other incoming tariffs, but promised long-term gain in the reassuring of American manufacturing jobs.
Meanwhile, his own political honeymoon is in doubt. Trump had enjoyed some of the best approval numbers of his career, but they are ticking down and sliding underwater, meaning the point where they're below his disapproval level.
"You're getting a negative vibe," said Gary Hufbauer, a longtime trade-watcher at the pro-market Peterson Institute for International Economics.
The premier of Canada's most populous province was doing everything in his power Monday to fan the flames of economic fear in the U.S.
Ontario's Doug Ford was on NBC threatening to shut off electricity exports to the U.S., and minerals for manufacturing, and provincial contracts for U.S. companies — prompting the host to ask whether he's been discussing this with the prime minister.
Ford said he had.
"I will shut down manufacturing," he said. "I'm going after absolutely everything.… The market is going to go downhill faster than the American bobsled team.… It will be an absolute disaster — and it's all due to one person."
That one person, Trump, has all but rubbished the continental trade agreement he signed, an agreement that's supposed to set predictable rules for mostly open trade.
Trump is now going to ask Canada and Mexico to renegotiate portions of that Canada-U.S.-Mexico Agreement (CUSMA). The deal must, by law, be reviewed starting in 2026, and the administration says it's going to start public consultations.
But American trade lawyers won't just have their eyes on the CUSMA review. They'll also be busy handling lawsuits.
This will be the first time a U.S. president has used the 1977 International Emergency Economic Powers Act to impose tariffs.
The law requires the president to declare a national emergency — which Trump has, in fact, done with the border, dubbing fentanyl and migration that emergency.
Expect lawsuits challenging his use of the law, claiming that he's abused it, and his power, with a trumped-up crisis involving Canada.
After all, several Trump aides have saluted Canada's actions at the border. They even put out press releases declaring a win. They're also celebrating a spectacular plunge in irregular border-crossings.
There could be a "strong argument" that Trump's claims about the border are a pretext for the tariffs, said Dan Ujczo, senior counsel at Ohio-based Thompson Hine.
Ujczo notes that both the White House and the Department of Homeland Security repeatedly said in February that the border was at its most secure in history. "It is challenging to say that Mexico and Canada have not taken efforts to secure the border," he said.
Don't count on the courts stopping him. American presidents' trade actions tend not to get overturned by judges.
But litigants will try.
One auto industry official says it's absurd to put tariffs on his sector to alleviate a supposed fentanyl crisis.
"A Chevy Silverado built in Oshawa with steel from Pennsylvania and plastic resins from Texas is not a threat to national security within the principle of that legislation," said Flavio Volpe, president of the Automotive Parts Manufacturers' Association, Canada's auto-parts lobby group.
"[Trump] continues to publicly conflate a series of opinions and gripes while justifying punitive economic measures on us. Surely in a neutral court environment, that will be seen as bad faith manoeuvring."
So now we watch the Americans. American investors, and the courts. For all the talk about how Canada might fight tariffs, the decisive battle is south of the border.
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