Recession risks rise for all 3 North American economies over Trump-US tariff chaos

US President Donald Trump’s implementation of trade tariffs risks a recession in the United States, Canada, and Mexico, according to a recent Reuters survey. Businesses could struggle with a series of abrupt policy shifts that have created economic uncertainty.

Since February, the Trump administration has repeatedly threatened to impose 25% tariffs on goods imported from Canada and Mexico, only to suspend them in two instances, which has left investors in a state of incertitude. Last Thursday, for the second time in six weeks, the White House announced a temporary pause of tariffs for both North American countries. 

Recession predictions look more likely to happen in North America

Economists surveyed by a Reuters poll have described Trump’s play-pause-play situation with trade tariffs as chaotic. 

“Given this is so uncertain and that there are new announcements every hour or so, it’s kind of unclear what the environment is going to look like,” said Barclays New York senior economist, Jonathan Millar. “It’s hard to deny the risk of a recession has intensified.”

Wall Street has returned most of the gains seen during the November to January market uptrend. The constant policy reversals have also cast doubt over the Bank of Canada’s upcoming interest rate decision on March 12, with some experts saying it is now too difficult to predict if a rate cut will take place.

The uncertainty surrounding trade policy has already affected inflation, making it unlikely that the Federal Reserve will alter interest rates for the foreseeable future. 

According to a Reuters survey of economists across the US, Canada, and Mexico, 70 out of 74 respondents said tariff instability has exponentially increased the probability of a recession in their respective countries. 

Some economists have made two predictive scenarios, one under the assumption that tariffs will be imposed and another without them, though very few are uncertain which scenario is more likely.

The International Monetary Fund (IMF) reported on Thursday that if US tariffs are sustained, the economic impact on Canada and Mexico would be significant. Even if the tariffs are eventually rolled back, market watchers say the damage has already been done. 

“It just doesn’t look like a lot of this volatility will go away anytime soon, and this is obviously not healthy for sentiment,” said Claire Fan, senior economist at RBC in Toronto. Fan also mentioned that a worse outlook on economic conditions could force the Bank of Canada to cut its overnight rate by 25 basis points on March 12.

Canada retaliates with electricity surcharge

Canada is now responding to Trump’s trade tariffs with its own countermeasures with the latest action coming from the energy front. Ontario, the country’s most populous province, announced that it will impose a 25% surcharge on electricity sold to the United States, effective Monday.

Ontario Premier Doug Ford justified the move as a direct response to Trump’s trade policies. “I will not hesitate to increase this charge,” Ford said at a press conference in Toronto. “If the United States escalates, I will not hesitate to shut the electricity off completely.”

The Canadian province currently supplies power to some US states, including Minnesota, New York, and Michigan. 

Ford told reporters that his decision was not aimed at American citizens but rather at Trump’s administration. “Believe me when I say I do not want to do this. I feel terrible for the American people who didn’t start this trade war. It’s one person who is responsible. President Trump,” reckoned.

The politician’s office estimated that the new surcharge could generate between CA$300,000 ($208,000) and CA$400,000 ($277,000) per day. The revenue will reportedly be used to support Ontario businesses and workers affected by the trade war.

As reported by Cryptopolitan, the 60-year-old Ontario premier’s latest announcement adds to Canada’s existing retaliatory tariffs, which include CA$30 billion ($21 billion) worth of duties on US products like orange juice, peanut butter, coffee, appliances, footwear, cosmetics, motorcycles, and certain paper goods.

Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now