{"id":10705,"date":"2025-04-04T18:43:04","date_gmt":"2025-04-04T18:43:04","guid":{"rendered":"https:\/\/www.rbc.com\/en\/?post_type=rbc_tl&p=10705\/"},"modified":"2025-05-09T06:15:30","modified_gmt":"2025-05-09T06:15:30","slug":"3-questionsits-a-trade-war-without-borders-frances-donald","status":"publish","type":"rbc_tl","link":"https:\/\/www.rbc.com\/en\/thought-leadership\/the-trade-hub\/3-questionsits-a-trade-war-without-borders-frances-donald\/","title":{"rendered":"3 QUESTIONS It’s a Trade War Without Borders:\u00a0Frances Donald"},"content":{"rendered":"\n
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RBC Chief Economist Frances Donald answers three questions on Trump\u2019s tariffs and its impact on the global economy.<\/em><\/p>\n\n\n\n

Q: What do the U.S. tariff exemptions mean for Canada\u2019s economic growth outlook? U.S. still has tariffs on Canadian autos, steel and aluminum.<\/em>
FD:<\/strong> How quickly the Canadian economic narrative has shifted. Prior to \u201cLiberation Day,\u201d our biggest concern was the implications of broad based tariffs on Canadian growth and particularly, that Canada appeared to be the biggest relative loser of American trade policy. Now, while various sector specific tariffs will weigh on Canada in 2025, our concerns are shifting to more \u201ctraditional\u201d risks to Canada\u2019s economy\u2014the rising risk of a U.S. recession and a drop in oil prices. The latter may be more \u201cindirect\u201d in some capacity, but they are also more of a function of global developments that have far less to do with Canadian-U.S. political relations.<\/p>\n\n\n\n

Q: Do you expect the Bank of Canada and the U.S. Federal Reserve to reassess as U.S. tariffs are rolled out?<\/em><\/strong>
FD:<\/strong> The Bank of Canada and the Federal Reserve are facing different challenges, just like their economies are struggling with different risks. In Canada, inflation is around 2% with some mild upside created by global supply chain disruptions ahead. And yet, Canadian growth is still tepid and supportive of a few more rate cuts. As of now, we continue to expect another 50bps of rate cuts.<\/p>\n\n\n\n

The Federal Reserve is in a much greater bind<\/a>. The size and scope of tariffs announced are consistent with higher inflation and a much lower growth profile. That \u201cstagflationary\u201d mix pulls at both sides of the Fed\u2019s dual-mandate in opposite directions (price stability and full employment). At this point, our expectation is that concerns about inflation spiralling higher will keep the Federal Reserve on the sidelines, but markets have been increasing their probabilities of rate cuts to support what is likely to be a much weaker economy.<\/p>\n\n\n\n

Q: A bigger tariff war looms, with the U.S.-China and U.S.-EU imposing tariffs and retaliatory tariffs. Will that be inflationary and damaging for the Canadian and global economy?<\/em><\/strong>
FD:<\/strong> Just how damaging U.S. tariffs turn out to be will largely be a function of how long they stay in place for, and economists are poorly credentialled on making that call. But the largest concern at this juncture is that we witness a global uptick in prices as supply chains become entangled and the interconnected nature of our global economy makes it difficult for any economy to escape rising costs. There are certainly similarities to the COVID era that can be drawn, except for one major one: we didn\u2019t head into pandemic-era inflation having just gone through pandemic-era inflation. That is, Canadians and Americans have already experienced an over 20% increase in prices since 2020, and the ability of households and businesses to absorb a second wave of inflation so soon after is likely very limited. Last month, it seemed the trade war was North American centric. Now, it is global and without borders.<\/p>\n\n\n\n

Further reading:<\/strong><\/p>\n\n\n\n