U.S. President Donald Trump signed executive orders last week imposing an additional 50% tariff on a range of Canadian goods, including wine, dairy, furniture, cement and hockey sticks, in response to what the U.S. calls unfair trade practices. The tariffs are scheduled to take effect in 30 days.

Separately, Trump announced new tariffs on generic drugs imported into the U.S., starting at 0% now and jumping to 100% in August 2027 and rising to 200% a year later. Trump hopes these tariffs will result in drugmakers building manufacturing plants domestically. India is a large exporter of generic drugs to the U.S. and could be significantly impacted by these tariffs.

These announcements add another layer to an already tense U.S.-Canada trade relationship, particularly as Canada-United States-Mexico Agreement review talks are underway. The U.S. had decided not to extend the agreement for another 16 years at the beginning of July, which triggered annual reviews.

Escalating trade tensions add to market uncertainty and could raise costs for consumers on both sides of the border, which could complicate the inflation and economic growth picture policymakers are already navigating.

On Friday, the U.S. began collecting tariffs of between 10% and 12.5% on imports from 60 countries/regions which the U.S. says were found to have failed to prevent forced labour in their supply chains. This move replaces the tariffs that were initially imposed after the U.S. Supreme Court voted against the “Liberation Day” tariffs.

Statistics Canada reported that Canada’s inflation rate was 2.8% in June, down from 3.2% in May, and slightly below economists’ expectations.

Moderating growth in gasoline prices was the main driver of June’s slowdown. A ceasefire between the U.S. and Iran calmed oil markets, so gas prices rose 20.5%, on a year-over-year basis, in June, well below May’s 33.2% spike.

Grocery prices were still climbing, but more slowly, up 3.9%, on a year-over-year basis, in June, compared with 4.3% in May.

Core inflation, which strips out volatile items like energy and food, also eased, which suggests that price pressures aren’t spreading broadly across the economy.

With inflation cooling and closer to the Bank of Canada’s (BoC) 2% target, the central bank has more room to consider cutting interest rates to support economic growth, rather than holding interest rates steady to fight inflation. June’s data reinforced the decision by the BoC to hold its policy interest rate steady at its July meeting.

The European Central Bank (ECB) held its policy interest rates steady at its July meeting, following its hiking of the rates in June, which was the first since 2023.

Europe’s inflation rate eased to 2.8% in June, remaining above the ECB’s 2% target, while economic growth is projected at just 0.8% for the year.

Energy prices, still elevated from the Middle East conflict, were the main reason for the pause. The ECB wants to see how much of that geopolitical shock still needs to work through the economy.

The interest rate hold reflects a “wait and see” approach as ECB policymakers weigh persistent inflation against a fragile economic growth outlook.

Amid slowing inflationary pressures, the ECB has more flexibility to hold interest rates steady for now, though further interest rate hikes remain possible if energy-driven price pressures don’t continue to ease, particularly as tensions in the Middle East escalate.

S&P Global’s flash estimate showed Japan’s private-sector business activity kept expanding in July, with the S&P Global Composite Purchasing Managers’ Index (PMI) rising to 53.1 from 52.8 in June, marking a 16th straight month the PMI has been above the 50.0 growth threshold.

Manufacturing remained the standout performer. The Manufacturing PMI eased slightly to 54.7 in July from 54.8 in June, staying firmly in growth territory, as factory output was robust and new orders posted their strongest gain in five years.

Growth in the services sector also continued, though it softened slightly, with the Services PMI slipping to 51.9 from 52.2 as demand growth moderated.

Meanwhile, Japan’s annual inflation rate edged higher to 1.7% in June from 1.5% in May.

Overall, the data points to a resilient Japanese economy, with strong manufacturing offsetting a small slowdown in services, which is a reassuring signal at a time when growth has been relatively modest for Japan’s economy.