If tariffs were baseball, I’d have struck out by now. Let me explain. It’s a two-day process of writing, editing, and regulatory approval for one of these messy compilation pieces. On tariffs – I’ve recently rejected two of my own articles, two weeks in a row because the story changed so quickly, that careful analysis was useless, so that’s two strikes.
Then, last week my tongue-in-cheek piece compared the other side to a bad date and it was rejected by --- I don’t know – an RBC lawyer in Toronto. It’s tricky when finance and politics mix.
And they do mix.
We win! Last night’s great Team Canada hockey win was also strictly a non-political event.
I may have pulled a muscle just then.
Worth it.
Gotlieb Won: A timely, salient book recommendation: The Washington Diaries 1981-1989, by Allan Gotlieb. The author was our ambassador to Washington DC in the years intersecting both Pierre Trudeau and Brian Mulroney, and his tenure included a final, intense negotiation for the 1988 Canada US Free Trade agreement, predecessor to NAFTA, and the grandfather if you will, of the current USMCA. Gotlieb outlines levels upon levels of masterful bridge-building, push-backage, and – just a real clinic on negotiating with the USA. This was years before it became fashionable to be belligerent, and well before globalism had become a euphemism.
And now this, straight out of the can and doesn’t smell like soup:
RBC Wealth Management's latest investment newsletter.
Earnings before policy
What matters more for the market, Washington policy or plain vanilla corporate profit trends? While Washington, D.C. will likely capture a lot more business press headlines this year and policy developments could generate volatility, we think good old fashioned earnings trends will determine the U.S. equity market’s fate over the mid and long term. We look at the ongoing Q4 earnings season and the earnings outlook for the year.
Regional developments: Canada’s labour market appears to be stabilizing; U.S. Treasury bonds experience largest selloff since December; European equities’ positive momentum continues; Hang Seng Index heading for fifth straight weekly gain, powered by AI optimism
More here: Global Insight Weekly.
Charting it:
Impact of tariffs on Canadian GDP (see chart below from RBC Economics): “In the scenario that tariffs are imposed, but only last for three months before getting called off, we expect the growth impact would still be pronounced, but short-lived. Real output would essentially stop growing in nearby quarters with the economy recovering most of the losses after, once tariffs are reversed. Our forecast for GDP growth in 2025 at 1.3% would be halved if tariffs last through Q2 this year. But growth would be stronger in 2026 and 2027 as trade and production activities resume. Labour market conditions would still soften in a shorter tariff scenario, but to a lesser extent. The unemployment rate would rise marginally to peak at just more than 7% over the second half of 2025 before dropping lower.”
Interesting data on boomers aging out of the workforce, although it’s less meaningful without comparative information on other age groups.
Hyperscaler capex (see charts below): “While EPS growth has been good, Big Tech share price returns have been subdued through (early 2025) reporting season, leading to multiple compression against an improved earnings outlook. The Street underestimated 2025 capex among the hyperscalers, adding to concerns over AI investment costs that began to surface last year and which worsened recently after the success of DeepSeek R1.”
Repeated here in English: The big tech “Mag 7” party is on hold until they can either prove that they’re as magnificent as their share prices, or they scale down their operating costs.
Or both.
If you’re feeling a sort of callous developing on your international news and trade-tariff brain, you’re not alone. I’m holding out that Gotlieb had it right (see book recommendation above). Negotiation is mostly about relationships – it’s hard work, and trickier now than in recent memory.
Enjoy your weekend!
Mark