This Week in Review | US-Canada Trade, AI Data Centers, US Debt

Transcript

Hello and welcome to This Week in Review. This weekly segment is designed to highlight a few things you may have missed this week, what they could mean for financial markets, and why they matter to investors like you. To stay up-to-date with our latest market insights, subscribe to our YouTube channel or visit Fisherinvestments.com. Now let's review what happened this week.

First, US-Canada trade negotiations. US-Canada trade talks broke down last week and the tariff headlines have escalated since. Over the weekend, the US implemented 50% tariffs on roughly $20 billion of Canadian goods. Then on Tuesday, Canada announced dollar-for-dollar retaliatory tariffs on about $20 billion of US goods beginning September 8th. President Trump has also threatened to raise tariffs on Canadian automobiles and parts to 50%, beginning January 1st, 2027.

These new tariff escalations may sound significant, and we understand why the headlines can feel unsettling. To be clear, we believe tariffs are always an economic negative, but it's important to weigh the actual scope alongside the headline rates because the two can tell very different stories. The latest US tariffs would cover only about 5.2% of the US's Canadian imports in 2025. While most bilateral trade remains tariff free under the USMCA, and even Canada's planned retaliation covers a relatively limited portion of its imports from the US.

Another thing worth keeping in mind is that this isn't a new risk for markets. US-Canada trade tensions have been a dominant discussion for well over a year, giving businesses and investors considerable time to adjust. Stocks have largely looked past the noise. The latest developments also don't necessarily represent the final outcome. Trade negotiations have repeatedly shifted between escalation and cooperation, and both sides have incentives to keep talking. And as we've noted in a recent MarketMinder article, President Trump's January 2027 auto-tariff deadline leaves months for negotiations to resume. While legal challenges to the administration's tariff authority could also alter the landscape. For investors, the key takeaway is dramatic tariff headlines don't automatically mean genuine market impact. Tariffs remain a risk, but markets have had considerable time to deal with the trade uncertainty.

Next, AI data centers. Artificial intelligence remains one of the biggest stories in markets, and investors continue to pour money into building data centers, the infrastructure needed to support AI. When you consider what these facilities require, the challenge becomes clear: Data centers need enormous amounts of electricity, water, land and specialized equipment. That means the buildout depends not on just demand and funding, but also on whether the physical and regulatory conditions exist to support it.

Data centers have also become a political hot-button issue, both stateside and overseas. Headlines in recent weeks have highlighted pushback from local communities, with some voters making data centers a central issue for elections this year. Maine was the first state to pass legislation freezing large data center construction, though the governor vetoed it. Since then, 13 other states have introduced bills to ban data centers as well. And New York, one of the 13, paused them via executive order in mid-July.

Concerns about higher utility costs, resource use, noise and environmental impacts have led to delays, restrictions and even outright cancellations of proposed projects. That suggests community and regulatory resistance is becoming a more meaningful consideration for companies trying to expand AI infrastructure quickly. At the same time, there's an important nuance. Many of the jurisdictions restricting or debating data center construction aren't where the bulk of new capacity is being built.

Much of the industry's expansion is occurring in areas with more data-center-friendly regulatory environments. So for now, the backlash appears to be more of a constraint on the speed and the location of the buildout than a serious threat to the buildout itself. But that could change if resistance spreads more broadly. That distinction matters. This doesn't mean the AI investment story is over, and it doesn't mean demand for compute capacity is weakening. The key issue for investors, in our view, is the timeline. It's easy to look at today's demand, extrapolate it forward, and assume enough data centers will come online quickly to meet it. But physical infrastructure doesn't scale the way software or capital-spending plans do. Projects can take longer, cost more, and face more friction than investors initially expect.

We would also caution against reading this as a call against technology. It isn't, but we believe much of the optimism surrounding AI's growth has already worked its way into valuations. When expectations run high, even a good story can struggle if reality takes longer to catch up.

Finally, US debt fears. US public debt surpassed $40 trillion last week, renewing familiar concerns about the country's fiscal outlook. Last week, the Treasury Department announced plans to at least double its buybacks of long-term bonds, adding fuel to the headlines suggesting the government may be struggling with debt affordability.

It's a striking number, but the $40 trillion milestone isn't a surprise or a sudden deterioration in America's finances. Debt and deficits have been widely discussed for years, and the Congressional Budget Office had projected this milestone well in advance. More importantly, the $40 trillion figure includes money the government owes itself. Publicly held debt, the more relevant measure for investors is closer to $32 trillion.

The bond buyback headlines also deserve some perspective. Treasury's planned increase to roughly $4 billion is tiny, compared with the approximately $1.2 trillion in average daily Treasury-trading volume. Buybacks aren't a new emergency measure, either. They're a long-standing part of the Treasury's normal debt-management operations, helping to maintain liquidity in older, thinly traded securities.

Now, could US debt eventually become a bigger problem? Certainly. And to be clear, we aren't endorsing unchecked government spending. But a genuine debt crisis would likely show up in sharply rising borrowing costs and weakening Treasury demand. We just don't see that today. So 40 trillion is a headline making milestone and we understand it can stir up strong emotions. But the bigger picture matters. Treasury demand remains healthy, and a steeper yield curve may help boost lending and economic growth that can support the government's ability to service its debt. Rather than signaling an imminent debt crisis, these factors suggest the US can keep borrowing and servicing its debt at sustainable rates.

That's it for this week. Thanks for tuning in to This Week in Review. If you're looking for more insights, don't miss our other series Three Things You Need to Know This Week, released every Monday. You can also visit Fisherinvestments.com any time for our latest insights and thoughts on markets. Thanks again for joining us, and don't forget to hit like and subscribe.