“We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period. Thank you for your attention to this matter!” wrote the president today. Just before he posted this, markets had crested to new heights, as the end of the known trade world that Trump presented nearly three months ago is ancient history now to a stock market that runs on short-term sugar highs. After he posted this announcement that he and Canada could not come to an agreement on a trade deal, markets instantly fell before floating back up to close the day, proving yet again that hopium is the stock market’s primary governing principle.
Trump will try to spin this announcement that “a very difficult Country to TRADE with” will now pay us Trump’s preferred rate, but that’s not how trade agreements work. If one side doesn’t agree to it, there is no trade agreement, and thus there is no trade. That is what Trump really announced, that trade with Canada is going to be diminished as they could not come to an agreement, proven by Canadian-connected companies like GM falling in after-hours trading once the sugar-high wore off.
Trump also provided a window into another set of key negotiations in this rage post against our neighbor, whining that Canada is “obviously copying the European Union, which has done the same thing.” I wonder if the stock market is expecting an EU trade deal soon too!
China has to be loving this. The more deals the US negotiates with other countries, the less dependent we are on our largest trading partner, while the less deals we negotiate, the more leverage China has to squeeze Trump. If the nice people up north are politely telling us to fuck off, you think Xi is going to cut Trump a break? They’re getting clobbered by this trade war too, but they have more potential buyers than Trump does, and Trump is pushing more of them like Canada into their arms each day.
The good news for Trump is that the stock market is almost as detached from current reality as he is, and you can see this fact proven by plotting the bond market next to it. Look at how the smart money trading the two-year Treasury Note (green line) reacted to Trump’s post today (increasing interest rates because tariffs raise inflation), versus the stock market (white line) who also responded logically and pulled back before deciding that logic is for losers who will never reach the moon. There was no such confusion in bonds of what Trump’s post meant.
Chart via TradingView
The end of Trump’s 90-day pauses are just around the corner, and he consolidated them into a self-imposed deadline of July 8th. At this same time two weeks from now, we will know whether the trade apocalypse Trump unleashed and then delayed on the world will be unleashed, avoided, or delayed again. You can’t just tell people what a trade deal is and call it a trade deal, and the bond market knows it. The marginal buyer in the stock market at this point probably doesn’t even know what the bond market is anyway, so Trump would likely have to really screw things up to disabuse it of its belief that he has this all figured out. But if he does do something economically calamitous, boy howdy has the stock market set itself up to have the rug swept out from under it by a crisis of Trump’s making.
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