In the world of politics, particularly over the last few years, weekends are usually one of the driest periods of the news cycle. Under President Donald Trump, however, one never knows when the big events are likely to transpire. Case in point: Friday, June 27, which brought the end of trade talks north of the border, an official confirmation of a trade agreement with China, and a lengthy press briefing celebrating rulings from the Supreme Court. And then, just as quickly, heads began to spin.
Tariffs on Canadian Bacon
Shortly after scoring multiple Supreme Court victories and engaging in a prolonged back and forth with White House reporters, President Donald Trump announced on social media that he was ending all trade negotiations with Canada, effective immediately. The reason? He was upset about Ottawa’s Digital Services Tax (DST) that targets US tech juggernauts, such as Amazon and Google. “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,” Trump said on Truth Social. He later told the press at an Oval Office event that the United States has “such power over Canada” and that “they were foolish” to press ahead with the levy.
And just two days later, Sunday evening, Canada decided that it would rescind the tax “in anticipation of a mutually beneficial comprehensive trade arrangement with the United States.” Canada’s Department of Finance announced that “Consistent with this action, Prime Minister Carney and President Trump have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21, 2025.”
Trump has long been an opponent of the DST, and this was by no means the first time that the administration has aired its grievances. In the March National Trade Estimate Report, released by the US Trade Representative’s Office, officials highlighted the tax on online services, which they claim discriminates against American businesses.
“They single out U.S. firms for taxation while effectively excluding national firms engaged in similar lines of business,” the report stated. “Through bilateral and multilateral engagement, the United States continued to raise serious concerns regarding Canada’s DST and to encourage Canada to withdraw or repeal the DST.” Former Canadian Prime Minister Justin Trudeau installed the policy in June 2024 to reduce the ballooning federal deficit and level the playing field in the global tech sector. Ottawa is not the only one to introduce this policy; others, such as France and the United Kingdom, have implemented similar measures.
The attempt to tax American businesses in this was was widely expected to harm the Canadian economy, especially after April and May GDP data highlighted Canada’s growth rate contracting and pointing to an abysmal second-quarter performance. While inflation remains tame, recent numbers suggest that price pressures are forming. In the world’s largest economy, however, conditions are quite the opposite: Inflation remains low (for now), and the second-quarter GDP is projected to rebound between 3% and 4%.
Remember, the US economy can afford to be patient, but the rest of the world cannot.
What Chinese Trade Agreement?
Did you hear? President Trump signed a trade deal with the Chinese regime. Wait, what?
During an event at the White House on Thursday, June 26, the president passively revealed that the United States reached an agreement with Beijing. A day later, Commerce Secretary Howard Lutnick confirmed the news in an interview with Bloomberg Television, adding that the administration is close to making deals with ten major US trading partners.
No official announcement, no celebration, no fanfare. This was one of the most unusual developments in Trump’s second term, as a US-China trade deal would be a historic event for the world’s two largest economies. The US-UK blueprint, announced this past spring, generated more buzz at the resolute desk. Indeed, there might be some method to the madness.
Meanwhile, China’s Ministry of Commerce confirmed the news. “China will examine and approve applications for the export of eligible Controlled Items in accordance with the law. The US will lift a series of restrictive measures against China accordingly,” officials said in a statement to the press.
This comes weeks after Treasury Secretary Scott Bessent and his team met with their counterparts in London to de-escalate the situation and return to square one.
Great Expectations
Consumers have calmed down a bit since the peak of uncertainty in April. The final estimate for the University of Michigan’s June Consumer Sentiment Index revealed that the one- and five-year inflation outlooks slowed to 5% and 4%, respectively, following the spike. At the same time, their views about the economic landscape – current and the future – also improved this month.
As for the hard data, the Federal Reserve’s preferred inflation measure was decent enough not to spook Wall Street.
According to the Bureau of Economic Analysis, the personal consumption expenditures (PCE) price index rose 0.1% monthly and ticked up to 2.3% on a year-over-year basis. Core PCE, which excludes the volatile energy and food prices, rose 0.2% from April to May and increased to an annual rate of 2.7%.
Looking ahead, the headline annual inflation rate in the June consumer price index is expected to reach 2.6%, and the core CPI is forecast to rise to 3%. Truflation, a popular private-sector model relying on a treasure trove of pricing metrics, suggests the US inflation rate is 2.19%.
Summer in the City
Federal Reserve Chair Jerome Powell told lawmakers on Capitol Hill this week that tariff-related inflation is expected to appear in the June and July data. The CPI, the producer price index, trade prices, and PCE will prove to be must-see figures as they will verify President Trump’s sweeping global tariffs will rekindle the inflation flame or result in a whisper rather than a shout. If it is much ado about nothing, the Eccles Building will likely cut interest rates in September. If the inflation outlook deteriorates fast during the dog days of summer, rates will remain higher for longer.
