On the Eve of (Trade) Destruction*

The White House has confirmed imposition of tariffs on Canada, Mexico, and China tomorrow (Feb 1). Why are tariffs on Canada and Mexico different than (some) other tariffs? Consider this graph courtesy of Bloomberg via Torsten Slok:

I can’t see how production to domestic firms can be accomplished overnight, so presumably in the short run, firms will run down their inventories of stockpiled parts (maybe why goods imports were so high in December). But over the span of a couple months, that backstop will fail…

Wall Street reaction, as summarized by the VIX.

Canada has signaled retaliation of some sort.

*Apologies to Barry McGuire.

 

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