 Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong
|  | This week is expected to see shipping from China to the U.S. slow sharply. (Mike Mareen/Shutterstock) | | | We are going to hear a lot about shipping this week.
Yes, there are talks ongoing with a Chinese trade delegation. And yes, the U.S. has an agreement in principle with the U.K., which happens to be one of the big economies that has a trade deficit with the Americans.
There will rightly be a lot of focus on those talks and where things go from here.
But the fact is, there is a wall of consequences working its way toward U.S. shores.
Remember, the American tariffs apply as of the date a product is shipped out of the country of origin. So, companies rushed to get shipments out the door before those tariffs kicked in.
As of 12:01 on April 9, products shipped from China were facing 104 per cent tariffs (which was hiked later to 145 per cent).
It takes between four and six weeks for one of those big container ships to work its way across the Pacific Ocean.
Well, here we are, five weeks after the tariffs were imposed, and you'll be shocked to see what is happening to cargo ship traffic between China and the U.S. | | |  | | | | | My colleague Nora Young did an excellent fact-check of claims that major ports were already emptied out. (Click here to watch that.)
It's not true, of course. As we have discussed here, American importers have been increasing shipments to try to stockpile ahead of the tariffs.
But Young quotes Gene Seroka, director of the Port of Los Angeles, saying he's bracing for a sharp slowdown this week.
"It’s a precipitous drop in volume, with a number of major American retailers stopping all shipments from China based on the tariffs," said Seroka.
Retailers are scrambling to figure out what to do.
Axios reported that business leaders held a closed-door meeting with President Donald Trump.
"The CEOs of three of the nation's biggest retailers — Walmart, Target and Home Depot — privately warned him that his tariff and trade policy could disrupt supply chains, raise prices and empty shelves, according to sources familiar with the meeting," Axios reported in April.
Any slowdown in shipping would also mean critical parts and materials for American manufacturers and suppliers would get squeezed.
The knock-on effects of the tariffs don't stop there.
If ships aren't coming into port, you don't need trucks to haul their wares away.
And trucking is one of the most common jobs in America. |  | | | Trucking is the most common job among American men (this is also true among Canadian men). It's the top job in 34 states.
And if the trucks aren't needed, neither are the drivers.
Even if a deal is made with the Chinese, it will take a month or so before new shipments start arriving on U.S. shores.
My point here is that there is a whole series of consequences coming when the ships slow down. And as much as we will be focused on the prospects of any deals, it's important to think through the impact of the situation as it stands today.
What do you think will happen? Email me at peterarmstrong@cbc.ca
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forwarded to you. | | |  | | We will get the latest U.S. inflation data on Tuesday. Economists believe inflation accelerated slightly in April. The previous month came in at 2.4 per cent. Economists believe April saw inflation rise to 2.5 per cent. | | | | | | Canadian housing statistics will be released on Thursday. We will get the latest real estate sales figures from the Canadian Real Estate Association and the official housing "starts" numbers. | | | | | | As the tariffs begin to bite into the Canadian economy, we will be watching trade-sensitive data even more closely than usual. Statistics Canada will unveil the latest manufacturing sales and orders for March on Thursday. | | | | | Three things to read, watch and listen to this week | | |  | U.S. and Canadian flags fly near the Bluewater Bridge border crossing between Sarnia, Ont., and Port Huron, Mich., earlier this year. (Geoff Robins/AFP via Getty Images) | | | 1. Canadians' travel boycott deepens | | | I promised to keep an eye on statistics showing the impact of Canadians boycotting American goods and travel.
Well, we have some updates.
WestJet is pausing nine routes between the U.S. and Canada. My colleague Jenna Benchetrit quoted an airline spokesperson who told her the decision was due to a drop-off in travel between the two countries.
Flights between a handful of Canadian cities and American destinations were targeted. The U.S. destinations included Austin, Texas, Los Angeles and Las Vegas.
"WestJet continuously evaluates and adjusts its schedule to meet demand, and we remain committed to reviewing opportunities for direct service on these routes in the future," the spokesperson told Benchetrit.
The RBC Economics podcast The 10-Minute Take dug into some of the data and anecdotes around travel numbers in Canada.
Economist Claire Fan told co-host Carrie Freestone that domestic tourism stands to benefit from Canadians deciding against going to the U.S.
"In 2024, over three-quarters of total tourism demand came from Canadians. And as Canadian demand for U.S. travel slows, all those travel dollars will be redirected somewhere else — either domestic travel or other forms of discretionary spending," said Fan.
She says we don't yet have a ton of data to show how that is playing out this year. But, they are hearing encouraging signs.
"Anecdotally, there's been stories from domestic travel operators who have reported a surge in interest and bookings in activities for this summer, all from Canadians," said Fan.
Lastly, I noticed an advertisement from Porter Airlines trying to drum up new business by convincing Canadians to invite their American friends to come stay on their couch.
Interesting move. If the usual customers aren't flying south to see friends, get the friends to fly north.
Check out RBC's The 10-Minute Take here.
Read Jenna Benchetrit's piece on WestJet's cancellations here. | | | 2. One ship tells the story of Trump's tariffs | | | This piece is fascinating.
Bloomberg does this kind of stuff better than anyone. They found a single ship coming from China to the U.S. and explored the impact the tariffs will have on that particular shipment.
The OOCL Violet pulled into the Port of Long Beach on April 24.
"A hulking shipping vessel carrying thousands of containers full of goods bound for the U.S. The Violet is one of the first ships confronting a harsh, new reality: a steep 145 per cent tariff rate on nearly half of its Chinese cargo, brought on by President Donald Trump’s ongoing trade war with China," wrote the Bloomberg team of Andre Tartar, Denise Lu, Raeedah Wahid and Aaron Gordon.
The Violet was already loading up when the first round of tariffs kicked in. By the time it reached California, IHS Markit calculated its total cargo value was at least $564 million US.
"About 40% of the goods were likely subject to the new 145% rate, according to Bloomberg News estimates. The data suggests importing companies face at least $417 million US in new tariffs for all goods on the ship. That’s on top of preexisting import fees," wrote the Bloomberg team.
Over the course of the ship's journey, the tariff rate on those products changed three times.
When it left on April 2, the shipment was subject to 20 per cent tariffs. By April 7, the rate had climbed to 45 per cent. On April 10, the newest rate had climbed to 145 per cent.
The ship carried 5.7 million pounds of Chinese-sourced knitted apparel. It had $90 million US in industrial machinery and appliances, and another $44 million US in electrical equipment and parts was also included.
The Bloomberg piece runs through dozens of other, smaller categories of products aboard the ship.
That single ship could bring in as much as $417 million in tariff revenue. And remember, there are usually dozens of ships like this arriving every week.
"In the short term, the new tariffs should generate billions of dollars in immediate revenue for the U.S. Treasury — a cost that falls on American importers, who can choose to pass that onto consumers. The windfall, however, could be temporary. The number of cargo ships headed from China to the U.S. has plummeted in recent weeks," wrote the Bloomberg team.
The whole piece is great.
Read the Bloomberg explainer here. | | | 3. What low oil prices mean for the Canadian energy sector | | | My colleague Paula Duhatschek wrote an excellent piece last week. If you didn't see it, give it a read here.
The price of a barrel of oil has tumbled from a recent high of $80 US to around $60 this week.
"A steep drop in oil prices in the first months of the year has undermined any plans for oil companies to 'drill, baby, drill,'" wrote Duhatschek.
But she says that dynamic is playing out very differently in Canada than it is in the United States.
Companies south of the border are considering production cuts.
But as Duhatschek reports, Canadian companies are holding steady.
The reason is pretty simple. All that uncertainty has led to market volatility and fears of a recession. If that happens, it would mean lower demand for oil.
Meantime, OPEC+ countries have increased production, which adds more supply to the market.
Duhatschek quotes a letter to the shareholders of the largest independent oil producer in the Permian Basin (in west Texas and southeastern New Mexico).
"It is likely that U.S. onshore oil production has peaked and will begin to decline this quarter," said Travis Stice, CEO of Diamondback Energy, who reported that the company is dropping three rigs and one crew this quarter.
"To use a driving analogy, we are taking our foot off the accelerator as we approach a red light."
In the Permian Basin, the majority of wells are pumping shale oil, which dry up fast and require nearly constant new drilling.
"In comparison, Canadian oil production is dominated by the oilsands. The output of these wells and mines doesn't decline nearly as quickly. That means while it costs a lot of money upfront to build these facilities, they generally don't require much new investment to keep going," wrote Duhatschek.
That means lower break-even prices and a broader ability to withstand market fluctuations.
It's a smart and timely piece and if you read one thing in this newsletter, make it this one.
Check out Paula Duhatschek's piece here. | | | How the economy looks beyond Bay Street | | | Financial stability | | | Last week, we flagged that the Bank of Canada's Financial Stability Review was coming.
The FSR is a crucial report from the central bank, but it's usually deep in the weeds of banks, non-bank financial institutions and the underlying health of the financial system.
The FSR is not a forecast. It's a chance for the bank to highlight specific areas that could become concerns for financial participants.
"You put your gloomy hat on," said Bank of Canada governor Tiff Macklem, and "you think about what could go wrong, and then you ask, 'How well-prepared are we?'"
The report shows a breakdown in negotiations over the trade war could lead to serious instability and cause defaults on mortgages, banks' lending activity to seize up and general chaos in an otherwise stable environment.
The central bank also offered this fascinating chart laying out how the trade war could destabilize the financial system. | | |  | I think the chart speaks for itself. What I like about it is how clearly it shows the chain of events if things start to turn sideways.
The 2008 financial crisis caught everyone by surprise, in how quickly a market crisis turned into a debt crisis, which morphed into a national financial crisis.
If trade negotiations break down or if tariffs get worse instead of better, here's a pretty handy illustration of the impact that will have on the broader system.
What do you think?
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