The economies of the United States and Canada are experiencing challenges due to the ongoing tariff war initiated by U.S. President Donald Trump. As both countries face rising unemployment, central banks are preparing to make critical decisions. American economist Douglas Holtz-Eakin, president of the American Action Forum, discussed the situation in a recent interview.

Holtz-Eakin, who has held various economic advisory roles, including chief economist for President George W. Bush, addressed the impact of tariffs on job growth in both nations. He stated that the current slowdown in job growth can largely be attributed to the trade war, rather than typical economic cycles. "There’s probably some modest contribution of restrictive monetary policy by the Fed remaining higher than they would’ve otherwise," he said. However, he emphasized that the tariffs are the primary factor affecting growth.

According to Holtz-Eakin, the U.S. economy was growing at a rate of 2.5 percent in the fourth quarter of last year. However, he noted that growth has since slowed to about one to one and a quarter percent, roughly half the previous pace. He pointed out that Canada has also been negatively impacted, with its unemployment rate exceeding seven percent.

When asked whether Trump’s tariffs are a negotiating tactic or if they have already set both countries on a lower-growth trajectory, Holtz-Eakin expressed skepticism about the idea of negotiation. He remarked, "The president has talked about tariffs for 40 years in public life. He has shown his hand for the level of tariffs that he’s comfortable with — very large, the largest in a 100 years. I don’t think it’s a negotiating tactic."

Holtz-Eakin highlighted the significant economic burden of the tariffs, estimating them to be a $400 billion tax increase on American businesses and consumers. He warned that the worst impacts of the tariffs may still be ahead. "There’s been a lot of stop-and-start on the tariff front," he noted, referring to the uncertainty surrounding the future of tariffs and their effects on the market.

He predicted that businesses that have delayed adjusting their pricing in anticipation of tariff changes will soon have to raise prices to cover increased costs. This adjustment could lead to a rise in inflation rates and a decrease in purchasing power for households, which would negatively affect both economies.

Looking ahead, Holtz-Eakin expects continued challenges in terms of unemployment, sector growth, and prices. He believes that the second half of the year will be particularly telling for both the U.S. and Canadian economies as they navigate the ongoing effects of the tariff war.