Insights & Resources

Further Canadian dollar weakness likely

Statistics Canada announced that 32,600 jobs were lost during the month of March, the first decline since July 2024 and the worst figure reported since the massive pandemic-related 203,400 job losses posted in February 2022. In line with the monthly decline, overall annual job growth stood at just 1.7%. However, this March result for broader job growth masks a significant divide that has been witnessed since the economy was shuttered in 2020. On a year-over-year basis, public sector employment was up 2.1%, and private sector employment was up just 1.3% in the March data. The divergence has been in place for a long time. As can be seen in the accompanying graph, private sector employment tumbled 22.4% during the COVID-19 peak. In the public sector the decline was just 5.9%. This minor dip in public employment was quickly recovered over a two-month span. The recovery in private employment took a full 19 months. In addition to the aberration in these figures, population growth has skewed the unemployment rate in Canada. Another significant increase in the working-age population (51,800) was seen in March.

Since the end of 2020, Canada’s working-age population has increased by 10.4%. As a result, the participation rate (the percentage of working-age individuals who were either working or looking for work) stood at 65.2%, the lowest since June 2021 and far below the pre-pandemic peak of 67.3%. This indicates that, as the population has surged, there are now 707,000 potential workers still on the sidelines. A return to 67.3% participation would produce a more realistic unemployment rate of 9.4%, a level consistent with a recession.

U.S. industrial output extends its gains

Following its two-day monetary policy meeting, the U.S. Federal Reserve (Fed) left administered interest rates unchanged, holding the target for the federal funds rate at the rage of 4.25% to 4.50%. This left interest rates at their lowest level since January 31, 2023, with a total reduction of 100 basis points (a basis point is 1/100th of one per cent). This current easing cycle for monetary policy follows cumulative rate hikes totaling 525 basis points between March 16, 2022, and July 26, 2023, which was the most aggressive tightening since the 1977 to 1980 period. Interestingly, the March statement did not mention the potential inflationary implications of the ongoing international trade dispute even though it did state that “inflation remains somewhat elevated.” The Fed’s inflation target is 2.0% and annual growth of the consumer price index rose to 2.4% in March. The on-hold result was anticipated by the market and uncertainty over the potential length of the pause is likely to remain ahead of the next policy meeting, scheduled for May 6 and 7, 2025.

Impact of Trump’s Tariff Proposal on Geopolitics and Global Trade

1. Disruption of Global Supply Chains

The push to “buy American” and for “made in America” products aims to bring manufacturing and sourcing back to U.S. soil. It fundamentally disrupts the global supply chains that have been optimized over decades by business owners with little influence by governments.

These disruptions could result in:

• Higher input costs for U.S. manufacturers relying on foreign components and labour.
• Delays in production cycles due to the restructuring of sourcing networks.
• Retaliatory tariffs from trade partners, escalating into broader trade wars.

2. Inflationary Pressures

With new tariffs, fewer cheap imports, and rising production costs, inflation is likely to rise. Higher inflation, without corresponding wage growth or productivity gains, could:

• Erode consumer purchasing power.
• Prompt the Federal Reserve to raise interest rates faster, potentially stifling investment and borrowing.

3. De-Globalization and Strategic Withdrawal

U.S. companies have long benefited from globalization—accessing cheaper labor, broader markets, and more diverse supply
chains.

A move toward de-globalization could:

• Undermine the competitive advantage of U.S. multinational corporations.
• Lead to loss of market share to more trade-flexible competitors (e.g., EU or Chinese firms).
• Diminish the U.S.’s role in shaping global trade norms and standards.

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