In case you missed it over the weekend, President Trump announced on social media that he is “increasing the Tariff on Canada by 10% over and above what they are paying now” in retaliation for an anti-tariff ad (a.k.a. “the Reagan ad” because it shows former U.S. President Ronald Reagan arguing against tariffs) paid for by the Ontario government.

It’s unclear what goods the additional 10% will apply to or when it will be imposed.

The announcement comes after Trump called a halt to trade negotiations with Canada earlier in the week because of the same ad.

Things can change quickly on this front with the Prime Minister and the President potentially meeting while both leaders are in Asia this week (although Trump said this morning that he won’t be meeting with the PM “for a long time”).

Adding to the uncertainty is the U.S. Supreme Court’s impending decision on whether or not the tariffs Trump imposed under the International Emergency Economic Powers Act (IEEPA) are valid.

The IEEPA tariffs include the 35% blanket U.S. tariff on Canadian goods announced February 1 in response to fentanyl trafficking, but not the sectoral tariffs on steel and aluminum (50%), autos (25% with exemptions), softwood lumber (35%), upholstered furniture, kitchen cabinets and vanities (25%), and semi-finished copper products (50%).

The Court will hear oral arguments on the IEEPA tariffs on November 5.

Where does this leave Canada in terms of U.S. tariffs?

On the bright side (if you can call it that), the impact of the blanket “fentanyl” tariff is limited by an exemption for Canadian exports to the U.S. that meet the country of origin rules set by the Canada-U.S.-Mexico Agreement (CUSMA). As a result, the actual tariff rate on Canada is much lower than 35% with estimates ranging from 3%  to 9%. We are updating our estimate, which pegged it at about 5% as of July.

It remains to be seen if this exemption will be applied to the extra 10% tariff announced in retaliation for the Reagan ad. If history is any guide, when the fentanyl tariff was increased from 25% to 35% in August, it did not apply to CUSMA-exempt goods.

The situation is not as good when it comes to the aforementioned sectoral tariffs which are causing significant pain for the affected industries and adding to the overall economic drag of U.S. protectionism on the Canadian economy. This would, of course, get worse if the sectoral tariffs were to go up by 10%.

Answer to the previous trivia question: The Brooklyn Dodgers moved to Los Angeles in 1958.

Today’s trivia question: What is it called when the size of Halloween treats gets smaller but the price doesn’t?