by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion about the deepening trade dispute between the US and Canada. Then, we break down what’s at stake as the US and China head back to the negotiating table. Also in today’s report: Washington’s push to maintain calm in Israel, the EU takes aim at an American tech giant, and France debates a new wealth tax. Plus, we’ll give you a quick update on all the key economic data you need to know including the latest CPI data.

Canadian Trade Tensions: The White House has announced the termination of trade talks with Canada, justifying the decision by citing the need to maintain tariffs for economic and national security reasons. This move is widely seen as a direct response to a Canadian advertising campaign that aired last week. The ads, which appeared in several US markets and on social media, invoked the voice and legacy of Ronald Reagan to challenge the tariffs and sway American public opinion.

• The trade standoff between the US and Canada is redefining their relationship following the imposition of tariffs at the start of 2025. The United States has placed tariffs on a number of Canadian goods, specifically targeting the steel and auto industries. In response, Canadian Prime Minister Mark Carney has declared that the country will seek to double its non-US exports, stating that Canada can no longer rely on its southern neighbor as a dependable trade partner.
• This ongoing friction between the two neighbors arises as the US, Canada, and Mexico are in the process of renegotiating the USMCA trade agreement. A key suspected goal of this renegotiation is to forge a unified North American front against China and other trade rivals to protect domestic industries. From this perspective, the White House likely viewed the Canadian ad campaign as undermining that very objective, prompting the decision to terminate talks.
• Although the recent US-Canada dispute represents a setback, we suspect both sides will eventually return to the negotiating table, as significant mutual interests remain at stake. Canada’s economy avoided a recession in recent quarters, and lawmakers are likely to seek ways to build on that momentum. Concurrently, the United States has an incentive to reduce economic uncertainty heading into next year’s midterm elections.
• This response establishes a precedent, signaling the administration’s intent to aggressively counter foreign attempts to influence domestic policy and elections. We should expect a more confrontational stance from the White House, particularly if it believes rival nations are using the midterms to sabotage its policy agenda. Consequently, markets should brace for episodic volatility stemming from trade policy tensions, though these are unlikely to derail the broader market trend.

US-China Trade Truce? On Friday, the US and China are scheduled to hold talks in Malaysia during the ASEAN Summit. The discussions are expected to pave the way for a broader meeting between President Trump and President Xi Jinping at the APEC Summit next Thursday. In advance of these talks, the White House has indicated it may extend the deadline for certain tariff exemptions as a goodwill gesture. Markets have reacted positively to the news, reflecting optimism that the extension could help build momentum toward a more comprehensive trade agreement.

• While the administration’s public focus is on tangible trade outcomes with China — such as an improved agreement, curbing the fentanyl trade, and ending restrictions on rare earth elements — its strategy appears to be driven by broader, unstated geopolitical ambitions.
• One key objective is to enlist China’s help in restraining some of its allies, namely Russia and Iran. The United States hopes Beijing can use its influence to discourage both countries from engaging in hostile actions against US allies and partners, particularly Russia’s ongoing war in Ukraine and Iran’s nuclear ambitions, which are viewed as a direct threat to Israel.
• In exchange for cooperation, China is likely to demand significant concessions from the United States. These would almost certainly include a reversal of the US stance on recognizing Taiwan’s sovereignty and a removal of curbs on technology exports to China.
• We believe the coming week or so will be important for setting market direction. Greater clarity on US-China trade relations should boost confidence and offer support for equities. While we do not anticipate a major deal being finalized in this short timeframe, we suspect there should be measurable progress toward a larger agreement, possibly materializing in early 2026.

Vance Goes to Israel: A White House visit to Israel to oversee the next phase of its peace initiative has been complicated by diplomatic tensions. Vice President Vance sparked controversy by calling a vote to annex the West Bank “stupid,” while the administration has expressed frustration over Israel’s airstrikes and restrictions on humanitarian aid, even as it acknowledges Hamas’s provocations. While we believe the US presence is easing regional tensions, we are closely watching to see whether Washington may be drawn into a deeper role.

EU vs Silicon Valley: The EU has accused Meta of failing to adequately police illegal content on its platforms, signaling a potential fine for violations of the Digital Services Act. This move is likely to provoke a response from the White House, which has previously criticized the EU for unfairly targeting US tech companies with hefty fines. Any retaliatory action by Meta could, in turn, prompt a reaction from Washington, escalating transatlantic trade tensions.

US Arms Race: The United States is taking steps to enhance its weapons capabilities to maintain military dominance against China. On Thursday, the Pentagon agreed to a defense contract with startup Castelion to develop hypersonic missiles. These weapons, which can maneuver while traveling at speeds several times that of sound, are designed to broaden US striking power and modernize its artillery arsenal. This partnership is a key part of a broader initiative to field this game-changing technology.

France Wealth Tax: The French Socialist Party is threatening to topple the government if the prime minister does not include a wealth tax in his budget proposal. The party is a crucial voting bloc, having just sustained the government in a recent no-confidence vote. While the bill is expected to affect only approximately 1,800 households with assets exceeding $100 million, critics warn it could prompt an exodus of wealthy individuals from the country. This debate exemplifies the profound political challenges involved in passing the national budget.

Turkish Courts Intervene: A Turkish court’s dismissal of a case against the main opposition CHP has removed an immediate threat to its leader, Özgür Özel. While this decision spurred a rally in Turkish markets, the underlying political climate remains fraught. The recent conviction of Istanbul Mayor and presidential frontrunner Ekrem İmamoğlu on corruption charges underscores why, despite this legal reprieve, Turkey’s political risk profile remains elevated.

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