Potential impacts of a U.S. - Canada trade war
Over the weekend US trade tariffs were announced beginning February 4th. The Loonie fell even further than its five-year low, and Canada retaliated with tariffs of their own, launching a US - Canada trade war. Then after further discussions between leaders, the tariffs were postponed for 30 days. This situation has been evolving rapidly, and the uncertainty of what this means may be creating some anxiety in your household.
Without getting into the specific details of the tariffs, here are some economic effects that can arise from situations like this:
1. Economic Slowdown & Inflation
- Tariffs increase the cost of imported goods, which raises prices for consumers and businesses.
- Supply chain disruptions could slow down manufacturing, especially in industries like automotive, agriculture, and steel.
- The Bank of Canada might consider rate cuts to support the economy, but inflationary pressure could limit its ability to do so.
2. Retaliatory Trade Measures
- Canada imposing counter-tariffs can hurt U.S. exporters while attempting to protect Canadian businesses.
- U.S. companies that rely on Canadian consumers (e.g., agriculture, manufacturing, retail) would feel the impact.
- Canadian provinces taking non-tariff actions (such as Quebec restricting American companies in procurement deals or Nova Scotia and Ontario pulling all US liquor from the shelves) could further escalate tensions.
3. Currency& Market Reactions
- The Canadian dollar will likely weaken due to uncertainty and trade instability, making imports more expensive.
- Stock markets will experience volatility as investors react to uncertainty.
- U.S. markets might also see sector-specific losses, particularly in industries reliant on Canadian trade.
4. Long-Term Trade Shifts
- If prolonged, businesses might diversify supply chains away from the U.S.
- Increased tariffs could encourage domestic production and interprovincial trade in Canada, but at a higher cost.
While the economic impact is likely to be significant if the tariffs remain for an extended time frame, we are hopeful that the aggressive tariffs are being used as a tool for President Trump to get what he wants in other areas and the final agreement will be much less punitive. We are also hopeful that both sides will come to an agreement in a short time frame. (When the US and Canada haggled over tariffs back in 2018, they were able to hash things out in a matter of months.)
In the meantime, we are happy to see many Canadians uniting in support for their local businesses by launching “buy Canadian” campaigns.
What This Means for Investors
Regardless of how long it takes to come to an agreement, there are a few proven investment tactics that we continue to use to preserve your portfolio.
- Asset allocation is your best defense. Having a mix of stocks, bonds, and alternative investments ensures you’re not overexposed to any single economic shock.
- Stay disciplined, avoid panic. Markets react quickly to headlines, but long-term investors who stick to their plan tend to come out ahead. We have been through volatile situations many times over the years.
- Opportunities arise in uncertain times. Periods of volatility often create great buying opportunities for those who stay focused.
While trade tensions may continue to create turbulence, remember: the best investors don’t quit —they stick to their long term strategy. Having a strong, diversified portfolio ensures you stay in the game, no matter what punches the market throws.
If you have any questions about your investments or portfolio strategy, feel free to reach out—we’re here to help.
This information does not necessarily reflect the opinion of iA Private Wealth. The information contained in this email comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and CIRO. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
