the dollar continues to rise as president Trump's economic policies come into clearer focus and right now that emphasis is on trade restrictions tariffs there are already a number of indications that show the global trade situation is indeed worsening including a sharp drop in shipping rates and while everyone wants to say tariffs are inflationary they're not quite the opposite back in 2018 we heard the same thing almost exactly and instead the dollar Rose signaling the opposite from inflation as the global economy sunk further and further toward its preco recession right now the Baltic dry an index
that tracks the shipping cost of raw materials and therefore is one of the most critical indicators of global economic health right now the Baltic dry is far closer to its record low than where it had been at this time last year and at the same time one of the biggest Freight hauling firms in the United States made a highly unus usual statement last week admitting that the long predicted recovery in the goods economy that wasn't going to happen here in 2025 either every year they say this is the year only to end up hoping better
luck next year and as I showed in a recent video global trade and even domestic Goods production remains locked in its weird downward spiral so all of that is even before we get to trade Wars and this is not an examination of the merits of those policies instead a look at the likely consequences of them starting in the trade War crosshairs right now is Canada and Mexico those currencies have been especially weak as a result of growing globally synchronized difficulties plus now the growing uncertainty about what further paying a potential 25% tariff might add to
each of them just like 2018 it isn't inflation that the markets are worried about instead we've got the Dollar Rising interest rates are Falling Again cyclical indications of economy that's already in trouble for a world that isn't growing and the reason it isn't growing is because we're still experiencing the downside of the supply shock and in fact trade Wars and trade restrictions are one proposed mechanism to deal with that downside and what it actually will do that's the open question right now the markets are saying it's going to add more pain to a situation that's
already quite painful but what was what was was announced yesterday what was said yesterday on President Trump's first day in office he announced his intention to stick to his campaign promise president Donald Trump signal plans to impose previously threatened tariffs of as much as 25% on Mexico and Canada by February 1st reiterating his contention that America's closest neighbors and largest trading partners are letting undocumented migrants and drugs flooded into the United States we're thinking in terms of 25% on Mexico and Canada because they're allowing vast numbers of people across the border Trump said in response
to questions from reporters in the Oval Office on Monday night I think we'll do it February 1st now Canada is highly dependent on trade with the US with roughly 75% of its exports heading south and Canadian officials say they will continue with their efforts to Lobby us counterparts on the benefits of trade between the two Nations which total an estimated 99 billion as of 2022 but many economists have warned the policy could lead to higher prices for Americans and pain for companies hit by Foreign retaliation Mexico president Claudia shine bomb's government has said the tariffs
could affect the 800 billion of annual trade between the countries it would potentially Drive inflation in the US and that's what they always say they always say that tariffs are inflationary and it does seem to make some intuitive sense because if you're adding the cost of some good goods or services then doesn't that inflation but instead what happens is by driving the price up like oil prices for non-economic reasons what that does is either reduce the demand for goods because people can't afford to pay for them or in the case of goods that are essential
then the costs go up and those costs get passed on the ultimate consumers but the consumers having to pay more for those Essentials end up cutting back in other places whe whether other goods or services we saw this already in 2018 they make made all the same predictions that the tariffs and trade Wars back then were going to be inflationary and they weren't I'll give you an example on April 5th of 2018 the was Wall Street Journal said there is never a good time to start a trade War but in 2018 the shots exchanged by
the US and China could be particularly troubling for investors because they Stoke a fear that has already rocked markets inflation Not only was that wrong about inflation it was wrong about what was happening in the marketplace the yield curve was already flattening quite a bit that was not inflationary that was the FED raising interest rates in the market disagreeing about why whether they should let alone why back to the Wall Street Journal the year's wobble started with a sharp rise in US bond yield sparked by signs that inflation is picking up again no that's wrong
it was the fed the market was pricing greater uncertainty because of the FED reacting protectionism is just fuel for that fire again no the US threats to impose tariffs on 50 billion of Chinese Imports across 1300 categories of products and China's Swift response has raised the risk of a more serious disruption so there never was inflation that's not what the markets were saying the flattening yield curve said the opposite that the global cycle had already shifted in the wrong direction and whatever impact that were that was going to happen from trade restrictions and tariffs it
would only add more negatives to a global economy heading in the wrong direction anyway the flattening yield curve as I said longer term interest rates were being forced up by the shortterm end of the market Marketplace which was having to react to the more hawkish stance by Jay Powell as he took over from the on the the Federal Reserve from Janet Yellen but eventually the yield curve flattened and flattened we had other signals including the rising dollar which started just a couple of weeks after this article was printed all of which said Global cycle was
already in bad shape to begin with and trade Wars whatever effect they had they were not inflationary if anything that just made the demand situation that much more difficult and that's what we're getting here in 2025 2024 ended on a relatively sour note though some places it looks good if only for artificial more artificial reasons I'll get to those in just a second but where we are in here in 20125 let's start with the Baltic dry the Baltic dry index measures shipping demand for dry goods essentially raw materials all around the global economy so it's
a very good Bell weather about the health of the global economy if people are shipping more and more stuff from here to there raw materials that get end up that end up getting made into goods and other products building materials and such so if there's board demand for that that's generally a good sign but instead here in 2025 really late 2024 it started the Baltic dry index has utterly collapsed here it has fallen to now 928 as of today which is only just barely above what it was in June of 2023 at 919 and it
was only there for a little while really going back to the reopening lows from China in early 2023 that's how bad things are in fact the Baltic dry at 928 is is much closer to that record low than it is to where it was at this time last year there is no demand to ship goods Dry Goods raw materials around the global economy that's not just China either it's really weakness across the entire Global Spectrum that has to do with a trade situation that I've said in a couple different recent videos is moving in the
wrong direction even before we get to trade restrictions and tariffs and it's not merely a global phenomena this is a problem for the United States as well there is no momentum in the goods economy in fact JB Hunt the one of the largest freight haulers in the United States took the unusual step of making an announcement last week about its profits when what they were saying is the long anticipated Rebound in the freight Freight industry that's not likely to happen this year either here's what was reported JB Hunt Transport Services a bellweather for the US
Freight Market has added to evidence that 2025 could be yet another lost year for cargo the leading us Trucking Company broke with its tradition of never giving earnings guidance to flag that analyst estimates for the first quarter operating profit were too high the long awaited recovery in Freight markets first anticipated in 2024 and then forecast for 2025 now looks like it won't even arrive before 2026 so like everything else in the real economy everything got pushed higher in 2021 as people believed that the economy was not just hot but it was going to stay that
way for a long time only to find out very quickly in 2022 the world simply forgot how to grow it didn't forget how to grow people were wrong about the recovery assumptions in 20121 but like like we see in US industrial production for example us us industrial production which is a volume statistic not a one that's subject to the price illusion it grew pretty substantially recovery in 2021 but then like we saw in German GDP or any of the number of trade stats that I showed in a recent video whether it be from Japan or
China even it's all all of a sudden in 2022 it just stopped it didn't crash what everyone everyone thinks of when they think of recession but it has been sideways to slightly lower for now over 2 years and in that time industrial production again this is us volume output is about 133% below where it should be the minimum level it should be had there actually been a recovery which would have been continued growth so us industrial production every year it said that the US is recovering manufacturing is about to turn a corner the inventory Cycle's
about to perk up and instead like JB Hunt is showing the trade situation around the rest of the world the goods economy in the US and everywhere else is in rough and rougher shape ape and it's not turning around despite the fact that industrial production in the US perk picked up the last couple months November December which many people attributed to trade policies or the Trump Administration or rate cuts from the Federal Reserve but instead what has happened just like German GDP or the other statistics I showed in that video industrial production goes back and
forth by a couple months here or there but it never goes anywhere and the longer it goes nowhere the worse this contraction gets to be and the worse the contraction gets to be the harder the situation is going to be when everything starts to come really to a head and that's what we may be seeing in things like the Baltic dry as well as other places here's this one last note about JB Hunt more telling is that Executives on Thursday JB Hunt conference call didn't refute a narrative that strong fourth quarter growth for Intermodal Freight
probably reflected a rush by retailers to move Goods in preparation for a possible East Coast strike in January which didn't happen the so-called pull forward of freight has continued into the current quarter as shippers stock up on inventories to avoid tariffs under the new Administration that's according to the National Retail Federation so the mini Revival that may have happened in the goods economy was again artificial it was another Distortion whether it was to get it get Goods in in stock before the P Port strike or to get them made and shipped and produced before we
get to the tariffs and that would include us industrial production because a lot of us production requires foreign parts so they got everything into the country before tariffs and then pulled forward a ton of demand in the goods economy into the fourth quarter meaning that unless demand actually and user demand actually picks up here in the first quarter of 2025 there's going to be another airpocket another downturn on top of the cyclical problems and then trade restrictions at the very least we've seen a lot of uncertainty um with China for example China's Yuan continued to
be weak I talked about the situation in China got a little bit of a reprieve when Trump didn't immediately announce massive tariffs against China yesterday so CNY today is a bit stronger it's the strongest it's been in a little while some Chinese stock markets uh there was a cautious rise in those so China was a there's a little bit of relief that nothing immediate was announced there Canada and Mexico however found themselves in thec Crosshair so we see continued weakness in both of those currencies on top of the economic weakness in both places as well
the Canadians just reported a CPI number that was negative for the month of December and the core rate was negative for the second straight month the Canadian dollar Canadian dollar the Looney is is down around 145 and hanging around that level which as Reuters reported the Canadian dollar was the weakest performer among the group of 10 currencies and the Mexican peso posted an even sharper decline there hasn't been a real realization in markets that Bank of Canada pricing doesn't really incorporate much of a tariff premium yet because there isn't a tariff premium it's not inflationary
at least according to Andrew Kelvin who's the head of Canadian Global rate strategy at TD Securities however it's possible that with the inauguration in the United States drawing even closer this was last week markets are starting to price in maybe a little bit more of a risk that Canada has a negative economic event due to trade policy and it's really the combination it's not just to trade policy which isn't inflationary it's the trade policy on top of the global cycle which is impacting Canada already in a negative way which is the whole reason why the
Bank of Canada is cutting rates to begin with so it's one more negative on top of a whole bunch of them already that's why Canadian bond yields over the last week have been moving sharply lower after Rising along with us treasuries in that short-term Trend since the beginning of December the 10-year Canadian Bond got up to around 3.5 52% that was on January 14th since then it's down 27 basis points today 325 as the Canadian bond market realizes negative Global cyclical fundamentals along with the prospects very real prospects of trade uncertainty but really trade tariffs
doesn't mean anything good for Canada same thing with Mexico the currency weakened as much as 1.4% before trimming losses this is today the selloff the worst in Emerging Markets came a day after Trump said he would slap tariffs of as much as 25% on Mexico and Canada unless the neighbors did more to clamp down on immigration and here's the small civil lining in all of this Greg Glasco a money manager at deltic asset management New York said I would lean toward the view that there's no serious damage here and that the weakness is shortlived as
likely the 25% the Tariff is a negotiating position and maybe that's really what this is Trump is imposing or saying he's going to impose a tariff on Mexico Canada China and some other places in order to create leverage to get some other things that he wants help on the border as well as especially the flow of drugs into the United States so maybe the tariffs are just a threat to get everyone to the table and talking on the United States and the president Trump's terms and it won't actually happen but even if it doesn't the
market situation the market is already pricing that that's a very real possibility that the trade Wars and trade tariffs are going to happen anyway and that if they do they're happening at maybe like 2018 and 2019 a pretty inopportune moment in the global economy so the idea that trade Wars are inflationary that's often trade Wars are not inflationary we've already seen that especially when the economy is on a cyclical downswing to begin with they add more pressure to a Goods economy that's already in its own prolonged slump and one that's one that's in every indication
likely to get worse Baltic dry a perfect example falling interest rates are interest rates that are already low central banks that are cutting rates even before we get to trade restrictions so many similarities to 2018 and 2019 including dollar behavior that was not inflationary curve Behavior again this is not an analysis of the merits of these policies but a potential what the potential consequences might be from the market perspective and what they're saying is the situation is not good to begin with in fact it's getting worse with all the artificial distortions from the pulling forward
of demand for non-economic reasons in the fourth quarter leaves the global Goods economy the trade economy already in very precarious shape to begin with throw some real tariffs on top of it and it pushes everything over the edge trade Wars trade Wars aren't even our biggest problem they are a response to what is and that is the world that can't grow I went over what all that means this world that can't grow and the evidence for it in the video link below as always thank you very much for joining me huge thank you eural University
members and eural University subscribers and until next time take care
