Out there

We married in uni. Then, off to a new city, a new campus. Dorothy enrolled in teacher’s college. I went into post-grad.

My career path was headed for academia, until I awoke one day and couldn’t take it any longer. I did the honourable thing, giving back my scholarship money. So, suddenly, we had none. Zero. Income? Zero. And it was 1974. Outside was a crapstorm.

Oil prices had tripled. The economy sank like a stone. Interest rates and unemployment spiked. Prices soared while the GDP shrank. It was stagflation, and – worse – nobody wanted to hire a long-haired, dodgy 25-year-old naïve runaway, over-educated, skill-less student.

But one guy did, finally. I went to work as a reporter on a small-city daily. The pay was $100 a week and the location was a two-hour drive from Dorothy. So I slept in the beater car. The first morning I arrived at work early, sitting alone in the newsroom waiting for everyone to show up.

My new boss, The Editor – gnarly, tough, hardened, old (at least 45) and scary – walked in. He looked at the kid. “What the F are you doing?” he asked. “There’s no news in here. Get the hell out there.”

In that moment I grasped the difference between studying life, and living it. The world does not unfold in books and lecture halls, but on the streets. Unpredictable things happen. Change is the only constant. Experience matters more than any degree or accreditation. And a good reporter’s job is to honestly, accurately inform people, so they too can learn, absorb and cope.

Still at it, apparently. So let’s review the change at hand.

My colleague Ryan is a smart cookie, yesterday telling you why his analysis points to a decent year for investors who stay calm and resolute. That’s good advice. However, there could be loss and heartache for many, say economists, who fail to understand just how unpredictable America is about to become. A new 1974 could emerge – rising prices, rising rates, sinking dollar, economy and employment. Recession and stagflation. Definitely not the time to borrow $1 million and buy a slanty semi.

The new US president takes office in a week. Therers been no hint his vow to impose 25% tariffs on Canadian goods will be scrapped or changed. The talk about the 51st state, the mocking of our leadership, the claim the States doesn’t need out exports, the porous border allegation and mythical drug trafficking is all cover. It simply distracts from the main point that Trump thinks 1930s-style duties will finance his domestic tax cuts, shore up the bleeding budget, allow territorial expansion and render him a legacy president.

Evidence is that’s delusional. Too bad most Canadian politicians fell for the distraction. And now the tariffs are at hand.

What should we do?

My economist friend, Derek Holt, has outlined two scenarios. The first – be passive. The second – be aggressive.

“The traditional economist response is to just take it when another country imposes trade restrictions,” he says. “Don’t retaliate. You’ll make things worse. Tariffs on US imports into Canada will drive prices higher, squeezing purchasing power, imposing further damage on consumption, business investment, growth, unemployment, etc. An ugly situation would be made uglier.”

But that would cater to the bully. If tariffs last for years, not months (likely) this is a losing hand. We suffer with no end in sight.

The prediction: the economy slumps 4% (twice as bad as Covid); unemployment goes up 2% (it’s now 6.8%); inflation drops to almost nothing (1%); and the Bank of Canada slashes interest rates by almost 300 basis points (basically back to 0%).

Yes, the pandemic redux. Big drop in lending rates, major job losses among trades, factory workers and in agriculture while real estate is fed by cheap money and the wealth divide yawns far wider.

If we fight back, more pain – for less time?

So what happens if Canada imposes serious counter-tariffs and tries to force a political resolution by, say, 2026 when the next US election cycle arrives?

“You’ve got to make it very, very clear to US businesses that Canada will not roll over and to raise awareness of the consequences to what is so far a checked-out US business community not using lobbying powers of influence to protect their supply chains from disruption and to protect their shareholders,” says Holt.

“That requires causing maximum upheaval across US supply chains and turmoil into US mid-terms, waking up US businesses, and forcing the GOP senators and representatives in all the states that declare Canada to be their #1 trade partner to explain the turmoil to voters as shifts potentially get suspended, plants shut, layoffs occur etc. The incumbent always suffers a setback into mid-terms. Make it more so this time. A lame duck President into the second half of this mandate if not before as the GOP spends 2026 on the run. Mess with Canada’s politics, and we’ll come down and mess with yours.”

Attaboy. Send in the fighter Canada Geese.

But the cost? Taxing US imports while our dollar is low and our exports punished will layer serious inflation over a stagnant economy dealing with job loss and contraction. As a result, the CB will likely raise borrowing costs to try to stem the explosion in grocery prices.

The prediction: the economy contracts by a withering 6% (three times the pandemic); unemployment jumps to almost 10%; inflation erupts 4% higher – to triple the level now; and the central bank doubles its current policy rates, adding 3% to existing lending levels.

Interest rates could double if Canada fights

In that case – big job loss, mortgages doubling, living costs pushed painfully higher as the GDP hollows out – housing is kaput. Sales would plunge. Prices might follow in the first multi-year correction since the early 1990s.

Finally, the economist offers this: “All of this is just my personal opinion but I’m much less convinced that the way to go is with the traditional economist’s advice in this instance because of the nature of the threat and the danger of the threats becoming serial in nature at much greater long-run than short-run cost. It may be that the trade-off lies in a couple of quarters—maybe more—of economic pain in order to save the economy longer term. I also don’t think it’s politically realistic to assume that Canadian governments—federal and provincial—will not respond which makes it practical to consider the risk of bigger retaliation. They may well turn the other cheek, but not that one.”

In other words, nobody has a handle on this. Trump threatens to unleash disruption and chaos. If he does, there’s no good outcome for Canada. Keep your head down. Stay invested. Wait for the storm to pass. It will.

A life lesson for us all. Your reporter stands by.

About the picture: “MSU: As a blog reader, I really appreciate your balanced perspective, and as a client, your balanced portfolio,” writes Brian. “This was Dexter, as smart and brave a cat you could ever met. This photo was taken by a visiting friend, Michael, as the sun shone in through our kitchen window. Dexter died only 5 months later at the age of 16.”

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

Source: https://www.greaterfool.ca/2025/01/12/out-there-3/