 Monday, February 03, 2025 | | | 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 | | |  | Unemployment is already on the rise as a trade war looms on the horizon. (Lightspring/Shutterstock) | | | This weekend was a whirlwind.
I was among those who didn't believe Donald Trump was going to go ahead with the tariffs.
We aren't yet there, but we are one giant step closer.
I know the question we all have revolves around how deep this will cut and what part of my pocketbook will feel it first.
And while I wish we had more or better answers, the fact is we don't know. This is the biggest trade shock since, what, the Smoot-Hawley tariffs of 1930? The Morrill Tariff bill of 1861?
Tariffs will be slapped on more than $1.5 trillion worth of trade. RBC says if the tariffs are sustained, they could wipe out economic growth in Canada for three years.
BMO Economics says the unemployment rate will rise to eight per cent and that the Bank of Canada's key overnight lending rate will fall all the way to 1.5 per cent by next fall.
The thing that connects all the forecasts is that Canada is entering this trade war with an already weak economy.
Real GDP has been meagre, at best. Per capita GDP has been in decline for six straight quarters now.
Employment numbers set to be released this week are expected to show a further weakening of the labour market.
So whatever bite the tariffs (or even the threat of tariffs) have, we will feel it pretty quickly.
The Bank of Canada updated its economic forecast last week. But it chose to leave the potential impact of tariffs and a broader trade war out of its formal calculations.
"Since the scope and duration of a possible trade conflict are impossible to predict, the MPR projection we published today provides a baseline forecast in the absence of tariffs," wrote the Bank of Canada.
But it did publish a side note exploring how tariffs may crash into the economy.
With it, the bank offered this handy graphic explaining how products would be hit by tariffs in a trade war. | | |  | | | | | In this case, Canadian steel gets tariffed on the way into the U.S. It's used to make auto parts, which are then shipped back to a manufacturing plant in Canada and hit by a series of retaliatory tariffs imposed by the Canadian government.
That car is sent back stateside for final assembly and it gets hit with the U.S. tariff. That drives up the cost of cars in both countries.
It would drive down demand for Canadian steel, which would have its own repercussions in Canada.
"Faced with less demand, Canadian exporters lower production and lay off workers," wrote the central bank.
That would be bad at the best of times. But these are not exactly the best of times for the Canadian economy.
Economists expect numbers out this week will show the economy lost jobs last month. They believe the unemployment rate continued its relentless climb higher.
This is how the unemployment rate looked when the numbers came in at the start of January. |  | | | The consensus among economists is that the unemployment rate rose to 6.8 per cent. That would be the highest it's been since the summer of 2021.
Even without factoring in the threat of tariffs, the Bank of Canada found the economy was already in need of a boost.
It cut rates to three per cent, in hopes that will give businesses and households some wiggle room and nudge the economy out of the ditch.
And given time, it probably would.
But this calculation changes enormously if the U.S. goes ahead with its tariff threat on Tuesday.
Make no mistake, it is a rough road ahead. And yet, I remain quite bullish on Canada. This country and its economy are something to bet on.
Dave McKay, the president and CEO of RBC, published a note on Sunday. Click here. It's worth a read. He lays out the stakes and makes clear what's at risk.
But he ends on an optimistic note. He says this is a moment to unite the country behind a long-term economic agenda.
"The world wants what Canada can provide in great abundance. We can feed and fuel the growing world, and be a leader in energy, agriculture, critical minerals, advanced manufacturing and technology," wrote McKay.
I have been making this argument for years. And maybe, just maybe, this crisis will help nudge this country into making some of the long discussed changes to really propel it into the future.
What do you think will happen?
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forwarded to you. | | |  | | We will get the latest Canadian jobs numbers this week. Jobs data for January will be released by StatsCan on Friday. | | | | | | As tariffs loom, watch for the Merchandise Trade Balance numbers. The latest statistics for trade in December will be released on Wednesday. | | | | | | The Global Supply Chain Pressure Index illustrates how well international trade is functioning. The latest global numbers will be released on Thursday. | | | | | Three things to read, watch and listen to this week | | |  | Will 2025 be Netflix's biggest year ever? (Giordano Ciampini/Canadian Press) | | | 1. Is Netflix an underdog or the dominant player? | | | Netflix is at an interesting crossroads.
It unveiled its latest slate of programming last week in Los Angeles, and the streaming giant's chief content officer Bela Bajaria claimed 2025 "could be our biggest year ever."
If you listened to Bajaria, you may be forgiven for thinking Netflix was a small upstart battling with the big legacy players.
But let's not get carried away.
Netflix stock soared to record highs last week after its earnings report showed big subscriber gains and price hikes were driving up revenue.
Variety magazine ran a piece under a headline that read, in part, "this is what winning looks like."
Its slate for 2025 is a blockbuster.
A new season of the monster hit Squid Game, more live sports and a Matt Damon/Ben Affleck film, to name a few.
But Bajaria wasn't there to declare victory.
A piece in The Hollywood Reporter highlighted the tone of the event.
"At times, the tone of the event seemed almost like a defense of the media giant — something it doesn’t exactly need at the moment," wrote THR's Mikey O'Connell.
Bajaria said the world's biggest streamer is perhaps a little misunderstood.
"One of the biggest myths about Netflix is that we don’t do prestige TV, or we don’t do as much of it as we used to,” said Bajaria.
"The most annoying thing about this myth, besides the fact that it’s not true, is that nobody knows what prestige TV actually is. Is it a critically acclaimed show? Does it win awards? Is it a show audiences love? Is it one that people at your dinner parties in New York and L.A. talk about?"
Read this Hollywood Reporter piece on the state of Netflix. | | | 2. The Logic: We need more traders, not trade deals | | | There are plenty of pieces written about what Canada should (and can) do to offset the hit that tariffs pose.
But this one has really stayed with me.
Kevin Carmichael in The Logic makes a compelling case that Canada has let its geopolitical muscles lapse.
It's hard to blame Canada. But the lack of strength means fewer options once our usually reliable trade partner turns on us.
"Geography determines destiny, but so does ambition. Executives haven’t made working on their geopolitical muscles a priority. With the world’s most dynamic economy next door, why bother?
“People will pursue the easiest strategy,” Duncan Munn, chief executive of Elevate Export Finance, told Carmichael.
But trade with the U.S. is decidedly not easy.
Carmichael says Canada has a long, storied history of struggling to diversify trade (whether that's finding new partners or doing more, better trade domestically).
But perhaps Trump's threats will be enough to nudge Canada out of its complacency. Other countries that don't have a huge, easy market right next door have built out amazing, global companies that compete everywhere.
Carmichael asks what it would take for Canada, Canadians, Canadian businesses and banks to try to think bigger.
"In other words, Canada doesn’t need more trade deals, it needs more traders," he wrote.
It's a great piece. Give it a read.
Read Kevin Carmichael's piece in The Logic here. | | | 3. Breaking down the numbers (en francais) | | | This is one of those things I wish I had thought of.
My colleagues at Radio-Canada have put together a definitive list of what provinces and which sectors are exposed to American tariffs.
The piece is in French, but you can avail yourself of the wonders of Google Translate and read it for yourself.
The piece breaks down Canadian export data province by province.
"Not surprisingly, Ontario dominates in total value of goods shipped to the United States, with some $250 billion in 2023. Nearly a third of these exports (30 per cent) were vehicles or automotive parts, one of the sectors most often mentioned by the American president," wrote Radio-Canada's Laurianne Croteau.
The piece has an amazing graphic that shows which industries in each province do the most business with American customers.
You can click on any province. Say Alberta. It shows crude oil is the No. 1 export, making up more than $144 billion in shipments. It also shows 99 per cent of those exports go to the U.S.
In British Columbia, it's softwood lumber, making up more than $5 billion, 81.3 per cent of which goes to the U.S.
In New Brunswick, it's lubricants and other refined petroleum products, at $5 billion. One hundred per cent of those exports go to the U.S.
It's really eye-opening and fun to play around with.
Check out the Rad-Can interactive here. | | | How the economy looks beyond Bay Street | | | What is Jevons Paradox | | | The internet is a funny place.
This week, news broke that a Chinese company named DeepSeek was able to build an AI model in a fraction of the time, for a fraction of the cost, without the most powerful chips as the big U.S. companies have done.
That news led to a surge in searches for the phrase Jevons paradox. | | |  | If you had clicked on the Wikipedia page in question, you would learn the phrase comes via the English economist William Stanley Jevons in 1865.
"The Jevons paradox occurs when technological advancements make a resource more efficient to use (thereby reducing the amount needed for a single application). However, as the cost of using the resource drops, overall demand increases, causing total resource consumption to rise.”
Initially, Jevons was referring to the use of coal. Here's how Sherwood News described it.
"Progress in steam engines, which enabled them to use less coal, didn’t lead to a drop in coal demand — it led to a huge rise," wrote David Crowther.
The question, of course, is whether that same paradox will apply to the artificial intelligence arms race unfolding.
Will we need fewer chips because DeepSeek may not have used the most powerful chips available?
Or will the paradox apply and AI developers will actually seek out even more chips to build in spite of this week's news?
That question roiled markets this week. Its answer is sure to move stocks even more. | | | Share this newsletter | | or subscribe if this was
forwarded to you. | | | That's it for this week. | | | Drop me a line anytime.
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