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Tariff-Gate

Adam Schacter

Unless you have been living under a “uge” rock, it was a turbulent weekend in Northa American politics and economics.

 

As promised in the weeks leading up to his campaign, US President Donald Trump moved to enact tariffs on 25% of Canadian and Mexican imports. The proposed tariffs are set to begin Tuesday February 4th. The justification for the imposed tariffs is the perceived inaction with respect to immigration and drug trafficking.

 

In turn, Canada retaliated by imposing a $155B tariff package of their own on US goods, which you can gather details about here, and which will phase in incrementally between February 4th and February 25th.

 

This escalation in trade measures has not only strained political relations between the two countries, but also threatens to disrupt economic stability, with potential long-term consequences. The tariffs could lead to job losses, higher costs for essential goods, and potential shutdowns of industries reliant on cross-border trade. The situation underscores the fragility of the trade relationship between the US and Canada, with both sides preparing for a prolonged economic conflict if the tariffs remain in place.

 

As far as industry, the impact will be felt most greatly in the auto sector, the oil and gas sector, and the consumer discretionary sector.

 

As far as Canada is concerned, this has a greater impact on Canadian businesses who cater to US consumers. And the resulting retaliatory tariffs have an impact on the Canadian consumer who purchases US goods.

 

The resulting tariffs (if long-lasting) should result in higher inflation (higher costs for household goods) and higher unemployment (Canadian businesses downsizing due to less US demand).

 

For those with stable employment in non-cross border goods sectors, and those who own things (real estate, stock portfolios, etc), the impact should be minimal. For those whose employment is dependent on companies who deal in cross-border goods (timber, steel, farming, oil and gas, etc), this may be more impactful. And for those who do not own things (which tend to be younger people and people of lower socioeconomic status), this will be much more difficult as unemployment rises and the cost of living goes up…


And Canada, a country that has tended towards spending money it does not necessarily have, is not well-positioned to bail out affected industries without furthering inflationary measures.


A lower GDP (the likely end result of this) puts downward pressure on interest rates, while higher inflation (another likely end result of this) puts upward pressure on interest rates.

 

Lastly, and based on the above, I wouldn’t be surprised if the US Dollar continued to rise versus other currencies, making it harder for other countries to do business buying US goods, and temporarily increasing the inherent position of foreign countries who their currency reserves in USD.


As for your portfolio, as I wrote in our Market Perspective – Winter 2025 less than 3 weeks ago, we made changes to increase your exposure to USD, reduce your exposure to US and Canadian equity markets, increase your exposure to international equity, and lowered overall market risk.


We won’t know if the recent changes will have better prepared your portfolio for what is to come, but we do tend towards taking a longer-term approach to asset management, and so if markets decline, we hope to be well-positioned to take advantage.

 

Lastly, we don’t expect markets to rise every year, but they certainly rise more than they fall.. And so try to keep a long-term perspective when evaluating whether or not the current landscape is still in line with your long-term financial objectives.


I hope you find this both interesting and informative in keeping pace with the events of today’s financial world.

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