This article discusses the potential impact of Donald Trump's tariff policies on the Canadian economy and offers advice on investment strategies in the face of uncertainty.
The inbox is full again, with many readers concerned about the looming tariff threat when Donald Trump is sworn in as U.S. President on Jan. 20. But that’s not all people are concerned about. Let’s take a look.Q – With Trump ’s tariff increase policy and a weakening Canadian dollar, will it be better to invest in U.S. stocks/ETFs in U.S. dollars? On the Canadian side, which sectors will benefit in such an environment? – M.M.
A – The Canadian dollar is at its lowest level in more than four years and is vulnerable to further losses if Mr. Trump hits Canada with his America-first tariff policies. Clearly, the market sees it as a risk. Owning U.S.-dollar denominated securities will provide protection against a further drop in the loonie, but remember this is a two-way street. If the Canadian dollar recovers, you’ll face a foreign exchange loss. As for the second part of your question, no one except the U.S. Treasury really benefits from tariffs but there are some Canadian sectors that should feel less impact than others. Remember that Trump’s primary concern is to protect or create domestic jobs. Imposing tariffs that don’t achieve that goal does nothing but drive up costs and fuel inflation. That suggests that Canadian natural resources that are scarce in the U.S. or that are strategically important to Washington may receive an exemption from the tariffs. Oil is an obvious example. In a rational world, gold should be exempt from trade wars. The metal is priced in U.S. dollars and jobs can only be created where there are viable deposits to be developed. However, Mr. Trump has his own agenda and it’s not always rational. Banks and insurance companies, retailers, REITs, and utilities should see little direct impact from tariffs. But they will be negatively affected if the economy is hammered into a recession by Trump’s actions, which many economists fear. So, to answer your question, yes, I think the safest course if you want to hold equities is to buy U.S
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