Down we go

Today’s outrage is called ‘de minimis’. This morning the US changed a long-standing rule allowing low-value stuff to be shipped to American customers without being hit with duties and tariffs.

You know. Cosmetics. Clothes, Motorcycle parts. Moccasins. Canadian cup protectors. The stuff small businesses send off as their bread and butter.

Four million packages a day containing things worth less than $800 are shipped by couriers and posties across the US from around the world. A big mess of that comes from Canada. But not for long. Now customers have to pay the tariff, which can increase the price by a third. It is capricious, and a small-biz disaster.

This erodes an entire economy, piece by little piece. Tariffs, taxes, duties, restrictions and barriers are choking off the American market from the rest of the world. It all fits with the 19th Century economic policies of the current president, who has already raised the overall tariff by nine-fold. Under Biden it was 2%. Under Trump, 18%. And rising. Not since the 1930s has any country tried this.

Well, we’re being hit already. De minimis just rubs it in.

Today we got the latest news on the economy. A little worse than the Bank of Canada expected as the GDP shrank in the last quarter by 1.6% (annualized rate). If that happens in the following three months, we’ll be in a technical recession.

“The trade war took a huge toll on trade in the quarter,” says bank economist Benjamin Reitzes, “with net exports slashing 8.1% from growth, the second most on record (only the pandemic was worse). That was driven by a 26.8% dive in exports, while imports slipped a lesser 5.1%. The uncertain backdrop also weighed heavily on business investment, with machinery & equipment spending plunging 32.6%, the fourth-largest decline on record.”

That sounds bad. The CB warned us it was coming. Income gains have taken a hit, and are now running at less than 1%. That’s impacting the personal savings rate, which has slipped to 5% – threatening consumer spending.

But while the GDP goes down, exports are clobbered and business leaders hit the brakes on new investments, what are average Canadians up to?

They’re shopping. Of course.

Household spending has jumped by 4.5% (matched by new government expenditures). The amount being spent on residential real estate – despite slow sales and a buyer’s market – has rebounded by 6.3% and overall domestic demand has increased 3.5%, “reflecting the resilience and perhaps Canadians’ bias to buy/travel domestically.”

In short, people are seeing less in the way of income gains, spending generously, saving fewer dollars, borrowing more and being oblivious to a declining economy, plunging exports and employers throttling back. No wonder half the population lives $200 a month away from perdition.

Well, if we are (maybe) on the path to a recession – temporary or not – what’s the game plan for the central bank? The implications on the market? And housing?

Predictions are mixed. “The economy is evolving largely in line with the BoC’s forecast,” says Reitzes. “Policymakers opted to stay on hold then, so this report likely doesn’t push them any closer to cutting in September.”

Hmm. But CIBC disagrees. Today’s lousy GDP stats, it says, “are supportive for our forecast that the Bank of Canada will cut interest rates by 25bp at their September meeting in an effort to accelerate the recovery, although next week’s employment figures are still important to that call… We continue to think that a couple more interest rate cuts from the Bank of Canada are needed to accelerate the recovery.”

The next few weeks will be meaningful. A rate cut, or not. A federal budget in October likely to bring a spending storm and big infrastructure. Meanwhile the ongoing saga of Trump-vs-Canada continues. Will we strike a bilateral deal? Will CUSMA live or die? Will we stand firm, refusing to crawl to the White House?

Soothsaying in the age of the orange guy is impossible, and meaningless. He’s nuts.

Just do what we suggested yesterday.

About the picture: “Life is pretty rosy living on Vancouver Island!” writes Della. “My friend’s dog is having her daily swim in her pool in Nanaimo!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/08/29/down-we-go-2/