By Michael O’Neill

“Desperado, why don’t you come to your senses?

You’ve been out hikin’ tariffs for so long now

Oh, you’re an unhinged one, but I know that you got your reasons

These things that are pleasin’ will hurt America somehow” (apologies to the Eagles)

There’s an odor of desperation coming from the White House. You can smell it with every Truth Social rant, trade deal announcement, and tariff implementation delay. What started with great fanfare and promise on President Trump’s inauguration has gone off the rails.

Trump has made at least 27 tariff-related announcements since taking office. His April 1 “Liberation Day” presser named 72 countries facing a baseline 10% tariff with added charges based on U.S. trade deficits. He called it “one of the most important days in American history.”

Bond traders made their own declaration of independence. They drove Treasury yields so high Trump was forced to rethink his strategy, and on April 7 he paused the reciprocal tariffs for 90 days until July 9, and when that day arrived, he paused again, until August 1.

Despite all the hype and the Truth Social tweets, Trump’s grand tariff strategy has resulted in zero (0) trade deals. He has announced preliminary and framework deals, but no US-Canada-Mexico-grade trade pacts. He claimed a Vietnam deal—Vietnam hadn’t agreed. Then came a “deal” with Indonesia, the 22nd-largest U.S. trade partner: “They’ll pay 19%, we’ll pay nothing.” The UK/US agreement? Just a sector-specific framework, not a full trade pact.

The Desperado is getting desperate.

Tariff Theatre

Tariffs are now a fact of life, although the details are still in flux. President Trump has turned them into a cornerstone of policy, promising that slapping duties on foreign goods will strong-arm companies into “bringing it all home.” Trump’s vision is of a renaissance of U.S. manufacturing, high-wage jobs, and prosperity for all Americans (except the ones he doesn’t like—their citizenship will be revoked).

It’s also a pipe dream. Global supply chains aren’t Lego sets you can snap back together onshore. Decades of offshoring led to mothballed factories and an erosion of the skilled labor base. It stripped out specialized infrastructure and entrenched a level of cost-efficiency that’s nearly impossible to replicate stateside. Skilled Americans will not work for $3,100/month (average) like they do in China, or $450/month in India. Rebuilding that ecosystem doesn’t happen by executive order. It takes years of capital investment, regulatory wrangling, and a serious appetite for higher labor costs.

And that means American consumers will be paying more because importers like Walmart, Target, and the tens of thousands of U.S. businesses are the ones paying the tariff—not China, not India, and not Canada. And they most certainly will raise the prices on their goods and services.

Fed Reality

Tariffs are not the Fed’s best friend like they are for Trump. Tariffs are inflationary because they force importers to pay a tax to the government, and that tax is passed on to the consumer in the form of higher prices—which is middle-school Economics 101. For a man who graduated from the Wharton School of Business with a B.A. in Economics, Trump doesn’t appear to understand the relationship between tariffs and inflation.

Fed Chair Jerome Powell does, and so do the 18 members of the Federal Open Market Committee. They know tariffs are inflationary, and last December they tweaked their Summary of Economic Projections (SEP) dot plot to show two rate cuts in 2025, down from four in September. They claimed it was because the economy was more resilient than expected and not because of President-elect Trump’s tariff stance. They may have been fibbing. The Fed has left rates unchanged at 4.50% since December, and recent inflation and employment data suggest the pace of future cuts is questionable.

Carney and the Loonie

Prime Minister Mark Carney has the unenviable task of dealing with Trump to protect Canadian workers and the domestic economy. Unlike pre-Trump bilateral negotiations, any agreement with the U.S. is as binding as a spiderweb in a hurricane. An agreement with Trump is worthless, so why bother?

Canada is not defenceless. A Trump-imposed tariff wall would hit Canadian exporters hard—but the U.S. would feel it too. There’s no quick, clean substitute for what Canada delivers. Canada supplies over half of U.S. crude oil imports, and the U.S. can’t meet domestic demand without Canadian aluminum.

Mr. Carney admits Canada will get hit with tariffs. But as he points out, it’s Americans who will end up paying the costs.

It won’t take long for U.S. automakers to howl, homebuilders to fume, and farmers to panic. Refineries will scramble for crude blends they can actually process. Even if Americans can find alternatives to Canadian products, it may take far more time than U.S. consumers—or voters—are willing to tolerate.

It won’t be a great environment for the Canadian dollar. However, if markets revert back to believing the Fed will cut rates at least twice before year-end, broad U.S. dollar selling pressure will act as a drag on Canadian dollar losses from tariffs.

And so the Desperado rides on—armed with tariffs, short on deals, and blind to the damage in his wake.