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THE CANADA TARIFF RISK MARKETS MAY BE MISSING

President Donald Trump's decision to impose 50% tariffs on a broad range of Canadian imports is raising concerns far beyond trade policy.

According to Ben Emons, founder of FedWatch Advisors, in a note on Tuesday, investors may be underestimating the inflationary impact. Canada is the United States' second-largest trading partner, and tariffs of this magnitude would ripple through supply chains on both sides of the border.

Emons argues the timing is especially important. Combined with renewed disruptions to key global shipping routes, including the Strait of Hormuz and Bab el-Mandeb waterway, the tariffs could reverse last month's disinflationary trend in consumer prices.

He estimates the combination could add 0.2 to 0.4 percentage points to headline U.S. inflation in August, a shift he believes is not yet reflected in Treasury yields, Fed expectations or sector performance.

The companies most exposed are those deeply tied to U.S.-Canada supply chains, including automakers, retailers and consumer goods firms. Metals, machinery and construction-related companies could also feel the strain, given their reliance on Canadian inputs.

That is what makes the tariff particularly potent: costs can compound at multiple stages of production. Notably, Emons says many of these sectors have already started to lag the broader S&P 500.

He estimates a realistic scenario would shave 0.25% to 0.65% from U.S. GDP through higher prices, weaker demand and supply-chain disruptions. In a more severe scenario, the hit could approach 1%, comparable to the initial impact of the U.S.-China trade conflict.

Emons' bottom line: the latest tariffs may be just the beginning, and the risks could grow if trade tensions escalate further.

Separately, President Trump is poised to unleash fresh tariffs on dozens of countries as soon as this week, the Financial Times reported on Tuesday, with his temporary 10% global tariff scheduled to expire on Friday.

(Terence Gabriel)

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