January 29, 2025 | President Trump’s Tariff Agenda Weighs Heavily On Canadian Energy Sector

President Trump moved quickly to show he meant business with his Tariff’s. Colombia’s leftist President would not let US planes land in his country with deported criminals that were his citizens. President Trump threatened 25% tariffs immediately and 50% a week later. This would have severely hurt the Colombian economy which exports crude oil and coffee as well as having a large tourist industry with the US. The US is its largest trading partner and exports are 28% of the value to its GDP. Less than 10 hours later President Gustavo Petro backed down and even offered to send the Presidential plane to bring back his citizens. This challenge by Trump against a minor economic player has shocked the world and now within days; Mexico and Canada will be in Trump’s crosshairs. Canadian markets are weakening with energy stocks getting sharply lowered. The S&P/TSX Energy Index is down 7% from 289 (three weeks ago) to 269 today. Our downside target of <240 remains. If Trump’s tariff announcements in the coming days appear painful then we could see a quick decline in the Canadian stock markets and energy will fall down to a point that they signal a new BUY window.

President Trump now has his eyes on Venezuela and plans to cut off Chevron’s license to produce in the country. Trump wants to deport Venezuelan gangs and Maduro will not likely agree to take them back. This theater will be the one to watch. Do they lose crude exports, do they face new sanctions, does the US move for regime change. A showdown is coming!

President Trump is moving  fast on his immigration promises. Tens of thousands of troops (mainly engineering etc.) are moving to build the wall and help border patrol. The US Coast Guard has sent its ships (minus the fired head of the organization for her WOKE stand). Illegal immigration is nearly halted. Frustrated gangs are firing over the border at ICE agents and are seeing return fire. US Special Forces could be sent into Mexico to go after the drug and smuggling cartels if the Mexican government does not stop the gangs (now classified as terrorist organizations by the US).

The Federal Reserve left interest rates unchanged at 4.25 – 4.50% for the Fed Funds rate. The decision came after three consecutive cuts. In the commentary they saw solid labor markets and wanted to wait to see if the ‘Tariffs’ had any impact on inflation going forward.

The Bank of Canada is preparing for ‘Tariffs’ and a weaker economy with another 25 BP cut in rates. The Policy Rate is now 3% down from 5% at the start of the rate cut cycle. The Canadian dollar is retreating, now at US$0.6923 and heading towards the low of US$0.68 that we posted in our 2025 Fearless Forecasts report. Economists note that a 25% Tariff would throw Canada quickly into a challenging recession if not averted by a deal. The next days and weeks will be challenging for Canada if President Trump decides for an all out attack on our drug exports, trade surpluses, illegal migration, low NATO spending and a lack of leadership in Ottawa. China which has faced bans on receipt of leading edge US AI chips took the problem and reversed the issue by coming up with their own AI chips that are just as fast as US chips and much much cheaper (under US$6M to develop versus over US$100B or more for US chips. Using open source AI helped. NVIDIA got walloped on Monday by over 17% in value or down by nearly US$600B. OUCH! US competitors were quick to give credit and NVIDIA itself said ‘China’s DeepSeek R1model was an excellent AI advancement’. Others are calling this a ‘Sputnik Moment’ for the US industry which was spending  hundreds of billions. Companies in building and running data centres also fall as did chip manufactures as this new source of AI products has busted the current high mark up approach of US manufacturers. How badly will AI chip margins be cut? The big names in the sector still trade at very lofty valuations.

The President’s key cabinet and other lieutenants continue to go through the Senate confirmation process. The first 100 days is seeing  major directional and policy changes unfolding. Next to watch for Senate approval is RFK which may be the most difficult to pass given his conflicting views and background problems.

Josef Schachter January 29th, 2025

Posted In: Schachter's Eye On Energy

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