08/24/2026
Market Monday Update
U.S. and Canada trade – NO DEAL
Late Friday, the tariffs talks collapsed at the 11th hour and new tariffs kicked in Saturday on billions of dollars’ worth of U.S. imports from Canada. Canada said it intends to impose retaliatory tariffs starting Sept. 8, sparking the risk of a wider trade war.
Tariffs imposed by the United States
On Saturday, the United States imposed an additional 50% tariff on approximately US$20 billion, or about C$28 billion, of Canadian goods. The affected products represent roughly 5% of annual Canadian exports to the U.S., making the measure more targeted than a broad tariff on all Canadian trade but still significant for the industries directly exposed.
The new duties cover products such as wine and other alcoholic beverages, dairy products, honey, cement, hockey equipment, furniture, paper and textile products, and selected electronics. Importantly, some products that previously qualified for duty-free treatment under the Canada–United States–Mexico Agreement, or CUSMA, are included. Energy, potash, fish and critical minerals are generally excluded from the new measure.
Canada’s response
Prime Minister Carney announced that Canada would respond “dollar for dollar,” imposing tariffs on an equivalent value of U.S. imports, the new counter-tariffs would take effect on September 8, with the detailed product list to be released beforehand. The initial areas identified for possible targeting include U.S. steel, dairy products, household appliances, agricultural equipment, pulp and paper, and electronics. The government also plans additional assistance for affected Canadian workers and businesses, building on support programs introduced during the earlier stages of the trade dispute.
Key risks
Further escalation: Canadian retaliation could prompt another U.S. response, potentially expanding tariffs beyond the currently targeted products. The direct economic impact of this round may be manageable, but a widening dispute involving energy, autos, metals or agricultural products would be considerably more damaging.
Weaker Canadian growth and employment: Canadian exporters subject to a 50% tariff may be forced to absorb part of the cost, lower production, redirect exports or reduce employment. Smaller companies with limited ability to diversify away from the U.S. market are particularly vulnerable.
Higher inflation and pressure on corporate margins: U.S. importers may pass tariff costs on to consumers, while Canadian counter-tariffs could raise prices for affected consumer goods, machinery and industrial inputs. Companies unable to pass on the full cost may experience margin compression.
Supply-chain and investment disruption: The uncertainty may encourage companies to delay capital spending, carry additional inventories or reorganize cross-border supply chains. This could reduce productivity and North American competitiveness even in sectors not directly covered by the new tariffs.
Monetary-policy and market uncertainty: A combination of weaker economic growth and higher tariff-related prices would complicate the outlook for the Bank of Canada and the Federal Reserve. It could also increase volatility in the Canadian dollar, bond yields, equities and credit markets.
How high are long-term bond yields?
The 30-year Treasury bond yield topped 5.33% Tuesday, its highest since June 2007, and the 10-year yield reached 4.75%. Short-term bonds barely moved. The long-term bonds did.
Three forces are pushing this. Washington is issuing enormous volumes of debt, with the national debt approaching $40 trillion. Inflation remains sticky, with oil back near $90 per barrel after a renewed escalation in the conflict in Iran. And AI growth is now being financed by the bond market, with hyperscalers (huge cloud computing companies) competing for the same buyers at the same moment governments need them most. When you crowd two urgent borrowers into one market, patience gets more expensive.
This is global: Japan's 10-year bond yield sits at a three-decade high, and Germany's 30-year bond yield is at levels unseen since 2011. Foreign investors hold roughly a third of U.S. government debt, and better yields at home reduce their appetite for U.S. Treasuries. Long-term interest rates are increasing, and once up, they can take a long time to come back down
How did higher bond rates affect equities?
The increase in bond yields affected equities exactly where it should: the chip industry. The mechanism is arithmetic: higher long rates compress the value of distant cash flows, and no group is more exposed than semiconductor manufacturers. And there is a second turn of the screw here: AI borrowing is helping push yields up, and those same yields bring AI valuations down. AI investment is now financing its own headwind.
By Wednesday, the U.S. Treasury doubled its debt buyback program, and long yields dropped by 10 basis points (0.1 of a percentage point). Health care and cyclical stocks (companies whose performance rises and falls with the economy) were the biggest winners, while chip companies fell.
What can we expect from Jackson Hole?
The Jackson Hole Economic Symposium (an annual gathering of central bankers in Wyoming) arrives next week, which will be U.S. Federal Reserve (the Fed) Chair Kevin Warsh's first. The Fed committee is openly split on whether to make a rate change, and long yield rates are telling him the market has its own view on inflation. After a week when the bond market did the talking, the question is whether equity valuations built for cheap capital can continue in a world where 30-year Treasury yields say capital is not cheap anymore.
