America's path to lower inflation depends in part on trade wars and actual wars becoming less economically disruptive. In recent days, both have taken turns that threaten the opposite.

Why it matters: The U.S.-Canada trade fight is shaping up to become an all-out trade war, threatening economic and political fallout on both sides of the border.

• Neither side is backing down, with Canada expected to target politically sensitive U.S. sectors with tariffs in the run-up to the midterms.

• This afternoon, Treasury Secretary Scott Bessent is announcing a new round of sanctions that President Trump has described as "economic D-Day," focused not just on Iran itself but on other countries and entities that do business with the nation, per a Reuters report.

Driving the news: U.S.-Canada trade talks collapsed Friday night, triggering 50% tariffs on roughly $20 billion of Canadian goods, including wine, cement and dairy products.

• Unlike earlier rounds of Trump tariffs, the new duties don't spare goods compliant under the U.S.-Mexico-Canada Agreement, eliminating an exemption that had kept much of the bilateral trade relationship untouched.
• Already this morning, Trump says the U.S. will double car and truck tariffs to 50%, though the duties won't take effect until 2027.

It was a swift reversal. Trump announced that the two countries were nearing a deal three days earlier.

• Negotiators spent weeks hammering out the details with pleasantries along the way. (For instance, talks stretched through Trump's top trade negotiator Jamieson Greer's birthday and his Canadian counterparts gave him a card.)

Zoom out: Over the weekend, both sides blamed the other for the talks blowing up.

• Canadian Prime Minister Mark Carney said Washington introduced unacceptable last-minute demands, while Greer on CNBC this morning accused Canada of seeking additional concessions after the two sides had reached the outline of a deal.

What they're saying: In a speech on Saturday, Carney said that the decadeslong path toward greater U.S.-Canada economic integration was over.

• "In short, they asked too much and they offered too little," Carney said. He accused the U.S. of introducing last-minute demands that would restrict Canada's ability to strike trade deals with other countries, calling it a "power play" that raised questions of Canadian sovereignty.
• Canada's retaliation doesn't take effect until Sept. 8, leaving time for an off-ramp. But right now, neither side sounds interested in restarting talks.

The big picture: Economists had growing confidence that the inflation hit from Trump's tariffs was largely in the past. The new Canada tariffs — and any further tit-for-tat actions — threaten to restart that process just as the Iran war's energy shock is putting fresh upward pressure on prices.

• Morgan Stanley economists wrote this month that tariff pass-through was "at or close to the finish line." They estimated tariffs had already raised the overall price level by roughly 0.6 percentage point, with little additional effect on core goods inflation since February.
• Now, Canada is preparing to retaliate against U.S. steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics.
• Carney also appeared to issue a warning about energy, reminding Americans that Canada supplies much of the oil, natural gas and electricity that the U.S. imports. "I don't think they want us to stop sending any of that energy," he said.

The bottom line: The disinflation outlook was counting on calmer trade and energy. Both now look like sources of fresh uncertainty.

The Treasury Department intervened in the bond market last week, looking to lower long-term rates by buying back longer-term debt and effectively swapping it for shorter-term debt. There are new hints of how that effort might escalate from here.

Driving the news: CNBC's Steve Liesman reports that the Treasury could use its $950 billion account with the Federal Reserve — essentially the U.S. government's checking account — to fund further repurchases of longer-term bonds.

• It amounts to a bigger stash of financial ammunition than the planned $4 billion Treasury intervention that was announced last week.
• Bonds rallied on the CNBC report, with the yield on 30-year Treasuries falling 0.04 percentage point this morning, to 5.23%.

State of play: The Trump administration has built a bigger cash buffer in the so-called Treasury General Account than the Biden administration, and appears willing to use that cushion to hold down borrowing costs.

Reality check: The Treasury's capacity to intervene is still limited relative to the $40 trillion national debt, at least without the Fed's coordination and its limitless capacity to create money from thin air.

• The Fed and its chairman, Kevin Warsh, have been mum through the events of the last week. Warsh is scheduled to speak Friday morning in Jackson Hole.