Good morning. U.S. President Donald Trump has ordered a review on trade with Canada, Mexico and China by April 1, while threatening to impose tariffs on the two neighbours next month. Perhaps one reason Trump might not move ahead with more severe tariffs so soon is that he would lose the ability to threaten them.

But tariffs are on the table, and Canada has prepared a list of retaliatory measures. A trade war would drive up prices on big-ticket purchases – as well as staples such as bourbon, coffee and pickles, in what feels like an increasingly personal attack. More on the broader impacts of trading tariff for tariff below.

Canada’s annual inflation rate ticked lower in December, as the GST break took effect, keeping the Bank of Canada on track to lower interest rates next week.

Netflix is raising prices in Canada, the U.S., Portugal and Argentina, as it spends more on programming.

TikTok is still in legal limbo after Trump claimed to have saved the app’s availability in the U.S.

Alberta’s coal policy is facing scrutiny after a member of a government-created committee spoke out on the province’s consultation with private interests.

• Statistics Canada reports its monthly raw materials price index, a key measure of economic health from the viewpoint of manufacturers.
• Earnings include Kinder Morgan, Inc.; AGF Management Limited; Procter & Gamble; and Johnson & Johnson.

First, the latest:

» Trump’s directive to investigate “large and persistent” trade deficits highlights his longstanding view that the country’s imbalance between imports and exports means the U.S. is getting ripped off.

Economists are of the view that the trade deficits are the result of a productive and growing economy, large federal deficits and the greenback’s role as the world’s reserve currency, Mark Rendell reports.

But Trump’s hangup over deficits is central to his “America First” trade policy, which is built largely around potential tariffs to correct perceived imbalances.

Keeping the cost of energy down is also important to Trump, which presents Canada with an opportunity make its case around a steady supply of low-cost energy to refineries in the U.S.

» It’s still unclear whether the tariffs would apply to Canada’s oil and gas sector, which is a significant contributor to the health of the country’s overall economy. But for Canada’s green technology sector, Jeffrey Jones writes, worries were already building over whether it could withstand a possible drop in subsidies and tax breaks under the new president. Tariffs would have a multiplier effect of pain on the emergent sector.

» While Canadian business and political leaders present their case to the new administration, the country’s chief executives are optimistic about growth prospects, Andrew Willis reports. A new survey by consulting firm PricewaterhouseCoopers shows that Canada’s business leaders are more likely than their global peers to mitigate the effects of tariffs by making acquisitions, diversifying product lines and building new facilities in the U.S.

Casting ahead

As the U.S. President’s (possibly intentional) mixed signals over tariffs make clear, the difference between what Trump says and what Trump does will be a persistent pain point for Canada’s economy.

Even if he doesn’t move ahead with punitive tariffs, for example, he is unlikely to drop the threat of them. The uncertainty is the point.

What matters, in the end, is the end: Some market watchers believe Canada will avoid permanent import measures through Trump’s second term. In a research note to clients, Thierry Wizman, Global FX & Rates Strategist at Macquarie, said U.S. allies such as Canada, Mexico, Britain and Japan will likely make the requisite concessions. But that doesn’t mean a smooth ride along the way.

“Whether the U.S. turns up the heat in the interim negotiating period, or whether it institutes full tariffs to ‘show it means business,’ remains a source of uncertainty,” Wizman wrote. “But within a definite period of time, those full or tentative tariffs that are put on to extract concessions will be reversed.”

In the case of Canada, the prospect of Conservative Leader Pierre Poilievre becoming the next prime minister would help fend off permanent tariffs, Wizman said. Poilievre’s government would likely align his domestic policy agenda with Trump’s, including around beefed-up border security measures.

How should Canada react?

Andrew Willis argues Canada should strike out at Trump by handing him a high-profile victory. The United States-Canada-Mexico Agreement, which replaced NAFTA at Trump’s behest, is up for renewal in 2026. Willis makes the case for speeding up the fight: “Why not give Mr. Trump an early ‘victory’ by reopening the deal now, with Mexico’s support?”

Canadian politicians might find the cover they need to reconsider long-standing policies aimed at protecting domestic industries. Dismantling barriers around Canada’s dairy, banking, telecommunications and airline sectors would give Trump a flashy win and potentially lower prices for Canadian consumers in the process. Reconsidering Canada’s long-standing restrictions around these industries might also represent a powerful plank for politicians on the eve of a federal election. Milk: It does the lobby good.

I’m writing “might” an awful lot, because we don’t know what Trump will do. Again, his unpredictability is purposeful, and the seeming disparity between his actions and his words are likely to cause the world whiplash on a daily basis over the next four years.