Externalities

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   By Guest Blogger Ryan Lewenza

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One of my main criticisms of President Trump’s tariff policies is that he seems to have a narrow – and not fully thought-through – grasp of how the US and global economies work, especially when it comes to the ripple effects and unintended consequences his trade war could trigger.

The US/global economies are extremely complex systems with myriad interdependencies and feedback loops that can arise from even small policy shifts.

I often use the analogy of Trump trying to plug a dam that’s sprung a leak. In his view, the leak represents lost manufacturing jobs, unfair tariff rates and other non-tariff barriers, and the US’s persistent trade deficits. These are real concerns, and he’s attempting to patch them up. But each time he plugs one hole, another seems to burst open elsewhere. It’s a vicious cycle where one fix leads to another disruption.

Today I’m going to review some of the recent ripple effects – or externalities – that have emerged because of his trade policies.

First, there’s the massive blow to US farmers – soybean growers in particular. After President Trump imposed new tariffs on Chinese imports, China retaliated with its own countermeasures. Just last week, Beijing announced fresh restrictions on rare earth metals and has halted purchases of US agricultural products, including soybeans.

Soybeans were the largest American export to China last year, valued at $12.6 billion. Today, that number has plummeted to zero. In May the Chinese government halted all purchases of US soybeans in protest. Prices have dropped, buyers are scarce, and much of this year’s crop risks spoiling if sales do not return. Entire harvests could be lost.

Many farmers fear they won’t survive the financial hit. In response, the US government is scrambling to assemble a massive aid package, with estimates ranging from $20 billion to as high as $50 billion in emergency support.

There’s been speculation that the aid package could be funded using the revenue generated from Trump’s tariffs. But interestingly, those funds may be at risk. The Supreme Court is preparing to hear a case challenging the legality of those tariffs, and if it rules in line with two lower courts, the government could be forced to return the collected duties to importers. That would leave the administration on the hook for billions.

US soybean sales to China

Source: US Department of Agriculture

Second, the US is experiencing a sharp decline in travel and tourism – especially from Canadians. As the top source of international visitors to the US, Canadians spent over $20 billion there last year. But this year, the numbers are plummeting. Las Vegas alone is seeing 300,000 fewer visitors per month compared to last year, with Canadian visits down more than 25%. A recent chart from Statistics Canada highlights the trend: return trips from the US are way down, with overnight visits down 34% and same-day trips down over 40% yoy.

Whether it’s pulling Kentucky bourbon off store shelves, boycotting American products, or choosing Portugal over the US for vacation, Canadians are clearly shifting their habits – and increasingly steering away from the United States.

Canadians returning from travel to the US by automobile

Source: Statistics Canada

Third, Canadian snowbirds are packing up in record numbers, selling off their US properties and returning home. In 2024, Canadians made up 13% of all foreign homebuyers in the United States, spending nearly $6 billion, primarily in sunbelt states like Florida and Arizona.

But that trend is reversing. In the wake of Trump’s tariffs and controversial remarks about Canada becoming the “51st state,” interest in US real estate has plummeted. One leading property website reports that Canadian searches for US homes dropped 26% yoy in May, continuing a steady decline since February, when the 25% tariff on Canadian goods was first introduced.

The Phoenix area has seen a dramatic shift: a staggering 700% increase in Canadian homeowners listing their properties for sale in Q1 of this year compared to the same period in 2024. As one Canadian snowbird put it, “We do not want to contribute US$10,000 to $15,000 a year to their economy if they’re going to use that kind of language and talk about Canada that way.”

A recent Royal LePage survey echoes this sentiment. It found that 54% of Canadians who own property in the US plan to sell within the next year, and 44% of those who already sold cited “political reasons” as their primary motivation.

Finally, the tariffs and the chaotic rollout of President Trump’s policies have prompted US employers to pull back on hiring. The chart below illustrates the sharp decline in monthly job gains, as reflected in the all-important US nonfarm payrolls. The downturn began in the spring, coinciding with the announcement of the tariffs.

To better highlight the trend, I calculated a three-month rolling average. In the final months of last year – before Trump took office – the US economy was adding an average of 300,000 jobs per month. As of last month, that figure has plummeted to just 29,000.

The administration insists the tariffs are having no impact on employment – or worse, claims that “deep state” actors are manipulating the data to undermine the President. But common sense suggests otherwise.

Businesses are grappling with higher input costs due to the tariffs, and the constant back-and-forth on trade policy has created a climate of uncertainty. That uncertainty is leading many employers to pause hiring decisions – or in some cases, to lay off workers altogether. The numbers speak for themselves: the data is capturing the growing anxiety among both large corporations and small businesses across the country.

Massive decisions and sweeping policy changes don’t happen in a vacuum or within the confines of a theoretical framework – they play out in the real world, with real consequences. While President Trump is right to confront some of the deep-rooted challenges facing the US economy, his approach resembles a hammer when a scalpel is needed. His methods, shaped by a parochial – and arguably outdated – view of how the economy functions, are inflicting real harm on their economy. Ironically, the very outcomes he claims to be pursuing – growth, stability, and competitiveness – are being undermined by the blunt force of his own policies.

US nonfarm payrolls have been declining with Trump

Source: Factset, Turner Investments

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

Source: https://www.greaterfool.ca/2025/10/18/externalities/