In this week’s The Seven…

• ‘Liberation day’ - Relief for Canada, but new global risks 
• Tariff(ied) again - Stock markets tumble 
• How were the reciprocal tariffs calculated?
• Retail carbon tax axed - Gasoline prices fall by full amount of tax
• Productivity puzzle - The role of skills gaps 
• Cracks in the labour market - Job losses in March 
• Interesting Fact: Anyone, anyone?  
• Chart of the Week: What happens when you build transportation infrastructure to new markets?

It was another wild week with global markets in turmoil. 

Let's start with the good news coming out of ‘liberation day’, which I discussed yesterday. It could have been much worse for Canada.  

We’re now far less concerned about direct impacts of tariffs on Canada and Alberta, as companies (outside steel/aluminum and autos) can avoid tariffs through compliance with Canada US Mexico Agreement (CUSMA). There is also hope that President Trump sees value in preserving some version of the agreement, and that there could be a path forward to negotiation. As it stands, Canada faces a lower U.S. effective tariff rate than other countries, and is no longer at a relative disadvantage. 

Unfortunately, there is a ‘but’ to all this: the economic benefits of the lighter touch on tariffs for Canada is now being countered by the indirect effects via weaker global economic conditions. The trade war has gone global, and markets have not reacted favourably. Global stock markets plummeted this week on recession fears. The S&P 500 and Dow saw the largest losses since 2020 yesterday, and are on pace for another decline today. The U.S. stock market is far below the January 20 level, when Trump took office.

There is no escaping that the disruption to global trade will hurt foreign demand, and weigh on commodity prices. WTI oil prices have plunged to near $US62/bbl as of this morning, compounded by OPEC’s decision to raise production. However, with strong demand for heavy crude, CUSMA exceptions on tariffs and oil sands maintenance-related disruptions, the light-heavy differential has narrowed to a shockingly low level of $US8/bbl. Meanwhile, businesses and consumers will continue to face higher costs from Canadian counter-tariffs, which remain in place with new ones added for autos yesterday.

In today’s topsy-turvy world, it’s always good to look for the silver lining. It remains the same this week as it was last week: there is an urgency to do more here in Canada - building transportation infrastructure, accessing new markets, and tearing down provincial trade barriers. If the trade war spurs this on, this could have a lasting benefit.

‘Liberation day’ news stole the spotlight this week, but we also got a jobs report today. It shows cracks appearing in the labour market amid trade uncertainty, including in Alberta. 

Reciprocal tariff math - simpler than at first sight

Watching President Trump’s press conference in the Rose Garden, I kept asking myself - how did the U.S. administration come up with the reciprocal  tariff calculations? The President described the calculation as the tariffs other countries charge on the U.S, plus non-tariff barriers like currency manipulation.   

Then word spread on social media, and later confirmed, that it’s actually much simpler than that. The calculation is a country's trade deficit with the U.S. divided by U.S. imports from that country. That amount is then divided by two in what Trump characterized as ‘kind’ tariffs. 

Retail carbon tax removed - Gasoline prices plunge on April 1 

The retail carbon tax was eliminated April 1, and with it the rebates paid to households. 

But did that translate into lower gasoline prices at the pumps? Yes.  

On April fools day, the average gasoline price in Canada dropped by 16 cents/litre, roughly in line with the size of the 18 cents/litre carbon tax.  

Observant readers will rightly point out that it’s more complicated than that. We all know gasoline prices bounce around for a variety of market reasons, not just taxes. How much was really related to the tax? Trevor Tombe from the University of Calgary pointed to the difference between gasoline prices in Quebec and the rest of Canada. Quebec is an excellent control as the retail carbon tax does not apply there (it instead has a cap and trade system). Tombe finds that gasoline prices in the rest of Canada fell by more than 20 cents/litre relative to Quebec. 

Note that this is only the retail carbon tax. A carbon price remains in place for large industrial emitters in Canada. 

This will help pull down annual inflation readings for the rest of the year. But the Bank of Canada will largely look past this (just like they did with the GST holiday), and focus on the underlying inflation trend.

A missing piece to the productivity puzzle? A look at skills mismatches

With all this tariff talk, let’s not forget about the perennial issue inflicting the Canadian economy - productivity.

We have argued there is no ‘silver bullet’ solution, but have pointed to some obvious culprits: chronically low levels of business investment, low R&D, lack of scaling of companies, and mismatches between the jobs available and the skills people have.

On skills mismatches, a recent Conference Board of Canada report calculated that the mismatch between jobs in demand and the skills required costs the Canadian economy $2.6 billion last year. They find that skilled trades and health care workers top the list of shortages, and that most of the excess vacancies are in professions that require non-university credentials (like college diploma or trade certificates).     

Key policy implications in the report: A focus on apprenticeship, targeted training and an immigration system that prioritises skilled trades and technical occupations. 

Canadian jobs - Early indicators of trade war headwinds

The trade war is already having an impact on the labour market. The Bank of Canada recent survey shows that businesses have turned more cautious on hiring and investment, and this seems to be playing out already in the jobs data received this morning. 

National employment fell by 33,000 last month, and the unemployment rate edged up to 6.7%.

In Alberta, employment dipped 15,000 last month, after essentially no gains in the previous two months. Job losses were led by trade and manufacturing, partly offset by gains in resource extraction, construction, and transportation. Overall employment growth has ground to a halt after a surge in late 2024.  

Jobs are still up over the last year, by 2% vs. 1.7% nationally, and the province has consistently outpaced the rest of the country since mid 2023. But job growth is slowing, which combined with still rapid labour force entry and migration is keeping the unemployment rate elevated. Alberta’s unemployment rate rose to 7.1% last month. 

Our latest forecast called for a marked slowdown in employment growth and higher unemployment rate of 7.6% this year (vs. 7% last year). This report is consistent with that forecast.

Interesting Fact: Anyone, anyone?

Who got yesterday’s trivia question right? We asked what 1980s comedy movie has the teacher explaining Smoot-Haley tariffs to a class of bored students? The answer is Ferris Buller’s Day Off. What you may not know is that the actor Ben Stein was an actual professor of law and economics. This famous scene has gone viral given Trump’s tariff action. The Smoot-Haley Tariff of 1930 is seen by economists as exacerbating the effects of the Great Depression. 

On a lighter note (and who couldn’t use that right now), watch the clip yourself.

Chart of the Week: What happens when transportation infrastructure is built?

On the topic of ‘getting things done in Canada’ it’s useful to have examples of success stories. 

In the energy sector, we have two recent examples. One is Trans Mountain Expansion, with crude oil shipments to Asia surging in 2024. The other one is propane. Shipments to Asia, primarily Japan and South Korea, took off starting in 2019 with the Ridley Island Export terminal. 

We have highlighted both trends in a recent Twenty-Four. 

The U.S. Energy Information Agency this week highlighted the rising propane shipments to Asia out of Canada. Even more capacity is being added. AltaGas and Vopak are building the Ridley Island Energy Export Facility (REEF), which is expected to add 55,000 barrels per day of capacity in phase 1 and scheduled to come online by the end of 2026.  

According to the EIA, “the planned capacity addition is expected to lead to more waterborne propane exports to markets in Asia, and, to a lesser extent, the western coast of South America and Mexico.”

Answer to the previous trivia question: Ferris Bueller’s Day off was a popular comedy from the 1980s with the famous scene of a high school teacher talking about the Smoot-Halley Tariff Act to a bored audience.

Today’s trivia question: What country produces the most automobiles (based on volume of vehicles manufactured)?