By Michael O’Neill

Welcome to Bully Poker—a backroom game where the deck is stacked, the cards are marked, and the rules are made up on the fly. The stakes? The economic health of the world’s biggest economies. The host, the dealer, and the guy making the rules? Donald J. Trump.

It’s less a friendly game and more of a shakedown.

Since returning to the White House on January 20, Trump has imposed a 25% tariff on steel and aluminum imports from nations such as Canada, Mexico, Brazil, Japan, South Korea, Australia, and the United Kingdom. Then he announced his idea for “reciprocal tariffs.” It’s a plan to match the tariffs and value-added taxes imposed by other countries on U.S. imports. Those tariffs would add the European Union to the list.

World leaders were still trying to come to terms with that barrage of tariff news when, on February 18, Mr. Trump said he was considering turning his 25% tariff bazooka on imports of automobiles, semiconductors, and pharmaceuticals.

Tariff News Fatigue.

The almost daily headline of Trump announcing or threatening another new tariff has lost its shock value. The first time a 25% levy on imports from Canada and Mexico was announced, both countries’ currencies fell sharply. The losses were reversed the next day when Trump changed his mind and delayed the implementation for a month. The latest batch of tariff news does not come with a start date.

Check out the S&P 500 index. It made an all-time high of 6,135.53 on February 18. That’s a sign that many aren’t buying into Trump’s full-blown tariff war just yet. Many traders still believe this is just hardball negotiating, not a serious policy shift. It is also evidence that traders think the U.S. economy will continue to outperform that of the other G-10 countries. They may also believe that the inflation threat posed by tariffs is fleeting and that the Fed will cut rates.

The U.S. dollar index is also suggesting that the market has priced in tariffs (for now), as it has dropped over 2.6% since the Canada-Mexico levies were announced (then delayed).

Diplomacy Donnie-Style

Russia invaded Ukraine on February 24, 2022, in an exercise that President Vladimir Putin expected to be completed within 30 days. After 1,091 days, over one million casualties, and hundreds of billions of dollars in damages, Trump decided to end it. His administration arranged for Russia and the U.S. to hold high-level talks in Saudi Arabia. His solution—redraw the borders and give Russia the territory it is already occupying while insisting that Ukraine is free to join Europe. Ukrainian President Volodymyr Zelenskyy was truly miffed. It’s understandable, as he wasn’t invited to the talks, which is like a divorce lawyer dividing assets without inviting one of the spouses.

European Union leaders were even more miffed. They didn’t get a seat at the Saudi Arabia talks either, yet they’re supposed to pick up the tab for Ukraine’s security down the line. Even more galling, after mooching off the U.S. taxpayer for almost 80 years for their own defense, they’ll now have to cough up their own cash for military spending. After all, Russia isn’t likely to invade the USA.

It is Not Business as Usual at the Fed

President Trump wants lower interest rates and a weaker dollar, yet his own words and deeds are keeping rates elevated and the greenback in demand. The Fed was in rate-cutting mode toward the end of last year, albeit with a lingering concern that inflation was not falling fast enough. That was enough for policymakers to project two rate cuts in 2025 at the December meeting. Two presidents later, and now investors will be lucky to see one rate cut before year-end.

The January 29 FOMC minutes reveal a less dovish Fed than what would have been expected, but the threat of tariff-induced inflation was clouding the outlook. The strength of the labor market was already tempering rate-cut enthusiasm, as were high equity valuations. However, policymakers still view rates as in restrictive territory, but elevated economic uncertainty made a cautious approach necessary.

In this case, Trump seems to be his own worst enemy.

Loonie Going in Circles

The Loonie and a headless chicken tend to run around in circles, and that will be the case ahead of the promised March 12 tariffs on Canadian steel and aluminum imports into the U.S. It is not a sure thing, as Canada is the largest supplier of both products, and Americans will have a tough time finding other tariff-free supply. The recent USDCAD price action has seen extended speculative long-dollar positions squeezed while key support areas in the 1.4000-1.4150 area remain untested and intact. The 1.4150-1.4550 range should contain price action until the latest batch of tariffs is imposed.

The Loonie is merely a low-valued chip in Trump’s game of Bully Poker.