MW Trump's tariff policy claims its first victim with Trudeau reportedly to resign

By Steve Goldstein

Canadian dollar and ETF advance

President-elect Donald Trump's tariff policy has claimed its first victim before the president even returned to office.

Canada's Globe and Mail newspaper, citing multiple sources, said Canadian Prime Minister Justin Trudeau may resign on Monday and will do so ahead of Wednesday's caucus of his Liberal party. The report said it's unclear if he'll stay as prime minister until his party chooses a new leader or if an interim prime minister will be named.

Chrystia Freeland had resigned last month as finance minister and deputy prime minister, citing what she felt were Trudeau's unserious economic proposals while facing the prospect of 25% tariff rates from Trump.

Trudeau has flown to Mar-a-Lago to discuss issues with Trump - the tariff threat is ostensibly about immigration and fentanyl - but the pair did not come to an agreement, and Trump has repeatedly called him "Governor Trudeau" in mocking social-media messages.

If there were early elections, Pierre Poilievre's Conservatives would likely sweep to power, according to election polls. The betting market Kalshi assigns a 96% probability that the next Canadian government will have a Conservative majority.

Markets responded warmly to the story.

The iShares Canada ETF EWC rose 2% in premarket trade.

The dollar $(USDCAD.FOREX)$ fell to C$1.4312 from C$1.4449, a reversal of the 5% gain the greenback has registered against the loonie over the last three months. The dollar also was impacted by a story in the Washington Post saying universal tariffs would be less severe than anticipated, though the report said it was unclear on the impact of tariffs on Canada and Mexico.

Kevin Muir, a former trader who writes the Macro Tourist blog, points out the Canadian currency's weakness since Trump was elected, or even since he threatened 25% tariffs, is middle of the pack compared to other major currencies - the Australian dollar, the South Korean won and the Brazilian real have all weakened more vs. the U.S. dollar.

"If at the last minute, Trump removes his threat to impose a tariff on Canada, then any rally in the loonie will be minimal as there is little worry baked into the price. If for some reason Trump surprises with a Canadian tariff, then a short loonie position will be rewarded," says Muir.

Brett Donnelly, president of Spectra Markets, had written about the possibility of Trudeau resigning. "Trudeau does not look to have a strong hand against Trump. The whole situation has become kind of embarrassing for Canada and there is a greater chance Trump continues to troll Canada with Trudeau in charge," he said.

Like Muir, he says any bullish response in the Canadian currency would be a "fade" though he said Poilievre would likely have an easier time negotiating with Trump given he's more hawkish on border control. Donnelly also pointed to the close relationship Vice President-elect J.D. Vance has with Canadian Conservative MP Jamil Jivani.

-Steve Goldstein

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January 06, 2025 08:16 ET (13:16 GMT)

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