The only interesting new angle is that the Prime Minister United Kingdom looks to be angling to align himself with Trump. Although that is certainly quite the choice for a centre-left politician, it is not clear how viable that is with the unravelling of NATO and a more assertive EU.
It is very much unclear whether there will be any cross-border trade between Canada and the United States in six months, beyond the strategic commodities the United States needs (heavy oil, potash, …). Trump’s plan appears to be that they will cut down the trees on Federal land to replace Canadian timber, although the infrastructure to allow that will not magically pop up in a matter of months. The Canadian election has been called, and it is unclear how the fractured Conservative coalition can avoid second party status. It is entirely possible that the existing trade agreement is formally declared null and void by 2026 given the antipathy between the Liberal Party and Trump.
A great many electrons are being killed in the quest to describe the new international trade environment. I always tended to ignore the external sector in the post-Bretton Woods era on the basis that external sector influence on interest rates were far less than external sector theorists suggest. However, it is clear that the easiest way for external imbalances to adjust to the new American tariff regime is for the American economy to shrink.
Unless something interesting happens on the economic front this week, this may be my last article until well after “Liberation Day.”
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