It’s Tariff Time for Our Biggest Trading Partners

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

• The biggest U.S. imports just got a lot more expensive…
• Look what gold did in response…
• Inflation stays tame, but will it last?
• A new crypto trading approach I can get behind…

It just got 25% more expensive to import from our closest North American neighbors…

And 10% more expensive to deal with our biggest trading partner, China.

Unless someone bends by the end of today (I’m writing this on Friday), President Donald Trump just fired the opening salvo in what’s sure to be a long trade war between the U.S. and its biggest economic partners.

Trump levied tariffs of 25% on about $900 billion in goods from Mexico and Canada, with a smaller, 10% tariff on Canadian energy fuels. He also levied a 10% broad-based tariff on China.

The next question on anyone’s mind should be, simply, what do we import the most of from Mexico, Canada, and China, and how can we avoid buying those things?

Bad news: The biggest imports are, for now, largely unavoidable.

For Mexico, the largest imports are electrical machinery and equipment, computers, mineral fuels, and vehicles, with these four groups comprising more than 53% of total imports.

That makes it a bad time to buy a car, with the country hosting a large auto manufacturing presence from consumer automakers the likes of Ford, General Motors, Nissan, Volkswagen, and Toyota.

But it also makes it a bad time to buy… anything that comes from a factory. If machinery, equipment, computers, and mineral fuels (aka petroleum) are all subject to tariffs, any industrial operation just saw its costs increase.

And because I can’t help myself, we have to talk about avocados. In 2023 the U.S. imported 80% of Mexico’s $3 billion in avocado exports. If you’re lucky enough to pay less than a dollar for a Hass avocado now, count on that changing.

Similarly, Canada’s biggest exports to the U.S. are energy fuels – namely oil and natural gas to Midwest refineries – and vehicles. Another interesting key export is gold – Canada exported about $14.7 billion worth of gold to the U.S. in 2022.

The biggest deal is China. While imports from China are roughly on par with Mexico and Canada, each in the neighborhood of $450 billion, neither country comes close to China on trade deficit.

China exports about $3 in value for every $1 in value it imports from the U.S., a ratio of 0.3. Meanwhile Mexico has a trade export/import ratio of about 0.7, and Canada 0.86. It also has the largest trade deficit at $279.4 billion – bigger than Canada and Mexico combined.

While this means China has a better deal than Mexico and Canada right now, this also gives China leverage that Canada and Mexico don’t have. It doesn’t rely on the U.S. for imports nearly as much, so it’s more willing to withstand tariffs while they’re implemented. That might be part of why it faces a smaller duty.

And the biggest items on the China import list are equally troubling. Electronics, machinery, and building materials all top the list – once again, the essential components of industry.

There’s no telling how long this tariff regime may last, or what compromises could be made. But in the meantime, we can expect more volatility and a re-pricing of certain sectors as a result.

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We may also see higher prices in “risk-off” hedges…

We last wrote you about gold on Jan. 13, noting it was just breaking out from the left-most falling resistance line on the chart below.

Since then, it has continued that uptrend with a 5% gain, as you’ll see here on my daily chart of gold:

Gold’s 7% gain makes it one of the best-performing major assets of 2025 so far, as stocks have returned 4.3% while bonds gained 1.14%. (Bitcoin has outperformed them all, however, with a 12% gain so far in 2025.)

The reason for this is simple, and has little to do with the 25% tariff on Canadian gold imports.

Tariffs are inflationary – importers will eventually pass on higher costs to consumers – and gold is the single-best long-term inflation hedge out there.

Gold bugs tend to be early, but not wrong. That’s clearly proving out here in a positive way, with gold rising ahead of what we see as a coming second wave of inflation – brought on in part by tariffs just like these.

As inflation moderated in 2024, the gold price continues to charge higher. As we pointed out back on Jan. 13, gold was actually the best-performing non-bitcoin asset of the year, with gains of more than 35%.

Now, the question is this: If inflation does return with a vengeance as we expect, will gold hold on to its gains?

Recent history says, “Not really.” One only has to look at the gold moves of 2020-2024 for the evidence:

Gold was red-hot in 2019 and 2020, rising more than 70% from the start of 2019 through the peak in August 2020.

At the time, everyone anticipated higher inflation to come out of the Federal Reserve’s money printing bazooka and the knock-on effects of the global pandemic shutdowns.

Then, as the world reopened in 2021 and inflation began to set in in 2022, gold got stuck in a four-year trading range that saw it lose as much as 21% peak to trough.

Am I saying the gold trade is over, and you should dump all your shiny yellow metal? Absolutely not.

What I’m saying is that, in all likelihood, the biggest gains in gold have already been made. It should still be a portion of your portfolio to protect against inflation and volatility, as it’s historically proven it can.

If gold does go on to outperform again in 2025, all the better. But there are better opportunities out there in the inflationary regime to come.

Speaking of, let’s look at the Core PCE numbers…

Core Personal Consumer Expenditures (PCE) numbers came out Friday, in line with expectations of 2.8%.

That’s still well above the Fed’s arbitrary 2% target (which we should note is well below the long-run inflation average of about 2.5%, but not the average of the past 15 years of, wouldn’t you know it, 2%).

Bad news for inflation doves seeking steeper interest rate cuts: All the data suggests inflation will stay stuck around this level for some time.

We can even look at this technically. Here’s a chart of the year-over-year Core PCE number with a 12-month rate of change (ROC) indicator at the bottom:

Using this indicator, we can see that the negative year-over-year changes in Core PCE are growing more and more shallow. While it’s certainly possible that the negative ROC readings will steepen in the months to come (it did during COVID), it’s highly unlikely.

What seems more likely is that the rate of Core PCE inflation, which measures the costs of goods and services save for food and energy, will rise as Trump’s tariff moves become more and more pronounced.

This is especially vulnerable when Trump’s first tariff moves predominantly hit industries through machinery costs.

Rising inflation in 2025 means fewer rate cuts, if any. It means we should look to less rate-sensitive areas of the market, like large caps and technology companies, to find gains.

Bitcoin and crypto, too, should perform well…

I’ve been pounding the table on crypto and mainly bitcoin since late 2023, and I’m not stopping now.

As I showed you on Saturday, we’re entering the late innings of the four-year crypto cycle. This year, we should expect the crypto world to continue surprising the masses, with price moves that defy logic and all rationality.

I’ll be trading these moves. Emphasis on trading.

Just as I said Saturday, the only long-term crypto holding one should have is likely bitcoin, and you could make an argument for others in the top 10 by market cap.

But that doesn’t mean you should ignore the trading potential of the other, smaller assets out there.

The market moves we’ve seen this week in the S&P 500 stocks are nothing compared to what’s available in crypto.

And over at InvestorPlace, they’ve just launched a new quantitative crypto trading algorithm designed to identify a predictable pattern seen before cryptos soar 10X, 50X, even 100X – in 90 days or less.

Luke Lango, friend of TradeSmith Daily and resident crypto analyst at InvestorPlace, is planning to present three such trades this Thursday, Feb. 6, that could soar in Trump’s first 100 days in office.

Luke will brief you on three specific crypto policies that could ignite the biggest crypto cycle to date in 2025.

And for those who were trading with Luke in the last super-cycle – that’s saying a lot, since 2021 delivered one-month gains of 276% on CELO and two-month gains of 605.3% on MANA in his Ultimate Crypto portfolio, to name just two highlights.

Now click here to automatically RSVP for Luke’s Great American Crypto Project event on Thursday at 10 a.m. Eastern.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily