Canada's expected tariff retaliation today applies to only a slice of the country's total imports from the U.S., so immediate harm should be limited, but U.S. escalation could threaten a much wider economic base including the auto industry. (thread originally from two weeks ago)

The threatened additional auto tariffs pose a real threat to the Canadian economy, whose auto exports comprise a large share of all trade to the U.S. Shrinking the Canadian economy would only hurt the U.S. by drying up demand for our exports and weakening a key geopolitical ally.

U.S. manufacturers depending on parts from Canada, particularly in northern states, could be forced into procuring costly inputs from more distant sources, including Mexico and East Asia, just as the U.S. is threatening a “transshipment” crackdown on those areas.

The explicit threat of expanded U.S. tariffs on Canadian imports is difficult to square against the Trump administration’s stated commitment to reducing inflation. Tariffs on Canadian auto products would pinch U.S. manufacturers and consumers reliant on lower-cost imports.

Section 338 allows for the outright banning of certain imports, as well as the imposition of tariffs on third-party countries. Such powers have never been used, but the Trump administration has proven itself capable of broadly interpreting similar legal authorities.

While the latest Section 338 tariffs comprise a small share of total trade with Canada, escalation appears likely. Canada’s announcement of retaliatory tariffs could be met with expanded tariffs from the U.S., or even more severe and untested measures in Section 338.

The collapse of trade talks with Canada puts the U.S. on unsure footing with its second-largest trading partner. The over 10% of all U.S. imports originating from our northern neighbor have faced a lower average tariff rate compared to other countries, but that could soon change.

The threatened additional auto tariffs pose a real threat to the Canadian economy, whose auto exports comprise a large share of all trade to the U.S. Shrinking the Canadian economy would only hurt the U.S. by drying up demand for our exports and weakening a key geopolitical ally.

U.S. manufacturers depending on parts from Canada, particularly in northern states, could be forced into procuring costly inputs from more distant sources, including Mexico and East Asia, just as the U.S. is threatening a “transshipment” crackdown on those areas.

The explicit threat of expanded U.S. tariffs on Canadian imports is difficult to square against the Trump administration’s stated commitment to reducing inflation. Tariffs on Canadian auto products would pinch U.S. manufacturers and consumers reliant on lower-cost imports.

Section 338 allows for the outright banning of certain imports, as well as the imposition of tariffs on third-party countries. Such powers have never been used, but the Trump administration has proven itself capable of broadly interpreting similar legal authorities.

While the latest Section 338 tariffs comprise a small share of total trade with Canada, escalation appears likely. Canada’s announcement of retaliatory tariffs could be met with expanded tariffs from the U.S., or even more severe and untested measures in Section 338.

The Federal Reserve faces a difficult balancing act in taming persistent inflation while maintaining full employment, and today’s numbers could strengthen the argument against a rate cut at the Fed’s September meeting. Inflation data released next week could provide clarity.

The U.S. economy is facing headwinds from elevated input costs, the seemingly intractable conflict with Iran, and policy uncertainty around trade and industrial investment. A weak labor market is both a symptom of those headwinds and a source of potential complications itself.

The new payroll data show a loss of jobs in July, driven mainly by declines in local education as COVID-era federal funding dries up and student enrollment continues a years-long decline. Prior economic bright spots, such as healthcare, saw slower growth in July.

The participation rate and employment-population ratio are both down meaningfully from this time last year, accelerating a trend that emerged in the recovery from the COVID-19 recession. This comes amid warnings of labor shortages bottlenecking supply and driving up prices.

🧵 Digging into this morning’s tepid jobs numbers highlights some key weaknesses in the U.S. economy. First, participation continues to erode - an estimated ~264k people left the labor force in July, following a ~720k decline in June.

Read the latest on tariffs from @equitablegrowth: equitablegrowth.org/the-cost…

Tariffs and a seemingly intractable (and avoidable) war in Iran are combining to produce chaos in global trade, suppressing economic growth across the planet, and threatening the dynamism and hegemony of the U.S. economy.