Tariff war drives commodity demand

As Canada and the European Union retaliated against United States tariffs on aluminum and steel imports, analysts at Macquarie said the chaos would hurt the global economy even while boosting short-term commodities demand.

Worldwide gross domestic product may grow by 2.2% this year, a downgrade from Macquarie’s outlook in December of 3%, the Sydney-based investment bank said on Wednesday. For context, the International Monetary Fund projects global growth at 3.3% for both 2025 and 2026, which is below the average of 3.7% from 2000 to 2019.

The trade uncertainty and an expanded U.S. budget deficit could push gold near $3,500 per oz., according to Macquarie. Copper prices, driven by Chinese stimulus, electrification and buying to beat potential tariffs, may ease by the third quarter to $9,000 per tonne on the London Metal Exchange from around $9,630 per tonne on Wednesday.

“The lagged and uncertain nature of tariff implementation is arguably acting as a near-term boost for commodities demand,” Marcus Garvey, head of commodities strategy at Macquarie, said in the bank’s report. “Our base case is for weaker global goods demand and industrial production growth to hurt first use commodities consumption. We therefore expect most commodity prices to move lower into the second half, with the majority of physical balances registering global surpluses.”

Team Canada

The outlook comes amid a trade war that has seen the U.S. impose 25% tariffs on imports of aluminum and steel from around the world. The EU responded with counter duties on up to 26 billion euros (C$43.8 billion) worth of U.S. goods due next month. Canada is retaliating with tariffs due to take effect tomorrow, the same day a Canadian delegation is due to meet with U.S. Commerce Secretary Howard Lutnick in Washington.

“We’ll be imposing as of 12:01 a.m., tomorrow, March 13, 2025, 25% reciprocal tariffs,” federal Finance Minister Dominic LeBlanc told reporters. “This includes steel products worth C$12.6 billion and aluminium products worth C$3 billion as well as additional imported U.S. goods worth $14.2 billion for a total of $29.8 billion.”

LeBlanc will be joined at the meeting by Industry Minister François-Philippe Champagne and Ontario Premier Doug Ford. It was Ford who fired back with a 25% surcharge on electricity exports to New York, Michigan and Minnesota this week before pulling the measure when Ludnick offered the meeting.

“I want to find out where their bar is set, rather than keep moving the goal post,” Ford told reporters in Toronto. “I want to find out how quickly [they] want to move forward and see what their requirements are, and then we can go back to Team Canada, as I call them, and along with the Prime Minister, because make no mistake, it’s going to be the federal government moving forward with this.”

Commodity prices up

The new tariffs pushed up prices for aluminum and steel. The U.S. Midwest duty-paid aluminium premium hit a record 45¢ per lb on Tuesday, or more than $990 per tonne, a 20% increase, before settling at 41¢ per lb. U.S. Midwest domestic hot-rolled coil steel futures for March delivery were priced at $944 per short ton on Wednesday, a 1.8% increase.

Elsewhere on commodities markets, buyers are lining up U.S. import deals for metals such as copper to beat potential tariffs and gain on the arbitrage between markets. There’s also been a build-up in the U.S. gold inventory, Macquarie notes.

“Once there is tariff clarity, additional buying should stop,” the bank said. “Moreover, at that point, there is likely to be excess inventory in the U.S. and, if tariffs have been imposed, the increased prices faced by U.S. consumers should be demand destructive at the margin.”

Stronger European defence and infrastructure spending related to Trump’s stance on Ukraine and Nato might have little impact on economic growth this year, Macquarie said. Prospects for China, meanwhiel, are mixed.

“This leaves the extent and efficacy of China’s stimulus as a key consideration, where firm intent to hit the 5% growth target should underpin aggregate demand growth, with trade-in policies lifting autos and consumer goods,” Macquarie said. “However, energy transition driven demand’s dependence on China is creating vulnerabilities, with significant uncertainty around the near-term outlook for renewable generating capacity installations.”

Bank of Canada

Also on Wednesday, Canada’s central bank lowered the benchmark interest rate by 25 basis points to 2.75% – as economists expected. It’s the seventh consecutive rate cut after inflation rose during the response to Covid-19 three years ago. The bank’s role won’t be as straightforward in the new crisis of a trade war with the U.S., Bank of Canada Governor Tiff Macklem told reporters in Ottawa.

“Monetary policy cannot offset the impacts of a trade war,” Macklem said. “What it can and must do is ensure that higher prices do not lead to ongoing inflation. The focus of the Governing Council will be on assessing the timing and strength of both the downward pressure on inflation from a weaker economy and the upward pressure from higher costs.”

With U.S. President Donald Trump not directly addressing the Canadian and European retaliatory measures during his press conference on Wednesday, the trade war appeared paused for at least a few hours. Stock markets were mixed after several days of significant losses.

Stock markets

In New York, the S&P 500 Index increased by 27.23 points or 0.5% to close at 5,599.30.​ The Dow Jones Industrial Average decreased by 82.55 points or 0.2% to end at 41,350.93.​ The Nasdaq Composite Index rose by 212.36 points or 1.2% to finish at 17,648.45.​ In Toronto, the S&P/TSX Composite Index gained 175.14 points or 0.7% to close at 24,423.34.

Europe and Canada will bring their concerns about tariffs, with more global reciprocal duties expected April 2, to the Group of Seven foreign ministers conference taking place this week in Quebec’s Charlevoix region. U.S. Secretary of State Marco Rubio is expected to attend.

“The only constant in this unjustified and unjustifiable trade war seems to be President Trump’s talks of annexing our country through economic coercion,” Foreign Affairs Minister Mélanie Joly told reporters on Wednesday. “Canadians have made it very clear that we will not back down and we will not give in to this coercion.”