The dust had just begun to settle on the global reactions to Donald Trump’s cabinet picks when he dropped another bombshell that reverberated through our news feeds. Through his social media platform, Truth Social, Trump announced a (not entirely) unexpected and deeply consequential move for Canada: a 25% tariff on all goods starting January 6, 2025.
For the first time since his victory, Canadians’ speculation about the effects of a Trump presidency moved from the theoretical to the immediate. The announcement has forced us to confront the reality of a potential trade war, a stark reminder of the risks inherent in our economic relationship with the U.S.
Ever the consummate dealmaker, Trump’s demand for removing this tariff was as vague as it was loaded. He called on Canada to eliminate “drugs, particularly fentanyl, and all illegal aliens” crossing into the U.S. By putting Canada on equal footing with Mexico, Trump ignored the vast differences between the two countries, especially in terms of immigration challenges.
While this move follows Trump’s playbook from his previous administration, the threat cannot be ignored. Whether this is a negotiating tactic reminiscent of the 2018 tariffs intended to renegotiate NAFTA (now USMCA) or a permanent shift in policy remains unclear. However, the potential implications for Canada are dire, and Canada must respond accordingly.
via: @JustinTrudeau/X
Economic Impact of the Tariffs
The proposed tariffs could severely damage the Canadian economy. The U.S. is Canada’s largest trading partner, accounting for roughly two-thirds of our GDP. A 25% tariff on all goods would disrupt trade worth over $800 billion annually, potentially leading to widespread job losses, inflationary pressures, and a further devaluation of our currency. The full potential of the damage is not yet known, but one thing is certain: a trade war is not in Canada’s best interests, particularly with the economic giant next door.
A Unifying Moment for Canada
Amid the uncertainty, there is an unexpected silver lining. The tariff threat has brought political leaders together under the banner of “Team Canada.” In a time of deep political division, it has been refreshing to see a united front aimed at defending Canada’s economic interests. While no one expected our most significant trading partner to launch an economic offensive, this shared response has reignited a collective sense of national purpose.
This moment also underscores an essential truth: Canada’s economic prosperity is intrinsically tied to the U.S. economy. In responding to this challenge, Canada has an opportunity to reassert the value Canada brings to the U.S.
Highlighting the Value of Canada to the U.S.
This is an opportunity for Canada to clearly communicate the value Canada brings to the table and make the case for the mutual benefits of our trade relationship, a point that former Canadian statesmen have been successful at articulating to our collective benefit. From Premier Ford to Minister Freeland, Canadian leaders are already speaking out about the broader consequences of the tariffs, pointing to the job losses, supply chain disruptions, and inflationary effects that would impact both nations.
The Path Forward: Bilateral Negotiations and Domestic Action
Considering the complexities of the USMCA (formerly NAFTA), this situation presents an opportunity for Canada to negotiate a bilateral agreement with the U.S. that more accurately reflects the realities of our unique relationship.
While retaliatory tariffs are one possible response, Canada should also focus on using this moment to address longstanding domestic issues. The challenge of illegal border crossings has been a growing concern, albeit on a much smaller scale than the crisis on the southern U.S. border. Trump’s demand that Canada tackle this issue head-on may be an unwelcome reminder, but it also provides an opportunity for Canada to take meaningful action in this area.
Equally important is the need to address Canada’s lagging competitiveness, which has been hindered by punitive taxation policies. To attract both foreign and domestic investment, Canada must create a more favorable business environment which includes revisiting tax policies and incentivizing innovation and entrepreneurship. A more competitive Canada will be better positioned to grow and diversify its economy, which has direct implications for the preservation and growth of wealth for Canadian families.
The Investor’s Perspective: Planning for Uncertainty
Canadians must recognize that this uncertainty presents both challenges and opportunities. For investors, the focus should be on prudence and diversification. After a historic run in equities, it’s clear that markets are unlikely to remain buoyant forever. Now is the time to assess risk and be prepared for volatility.
Portfolios with geographic diversification, including U.S.-denominated assets, can be especially valuable in turbulent times. A solid base of safe-haven, low-volatility assets helps mitigate short-term risks from tariffs and trade disruptions, providing stability and protection against market fluctuations. Resilient portfolios also offer a hedge against inflation driven by protectionist policies. For families with U.S.-denominated assets and income streams, this strategy provides an extra layer of security, as the strength of the U.S. dollar relative to the Canadian dollar can help offset inflationary pressures.
Families should also be mindful of the importance of long-term planning; resilient portfolios are built with an eye on future growth, not just immediate concerns. By staying focused on financial goals, avoiding panic during market dips, and being proactive in adjusting their asset allocation, families can protect their wealth and position themselves for future success, regardless of short-term economic challenges that will ultimately pass.
It’s important to remember that resilient portfolios are built to stand the test of time. As Canadians navigate this uncertain period, investors should be mindful of the potential for economic fluctuations and adjust their expectations accordingly.
Conclusion: A Moment of Resilience
The tariff threat may be a crisis, but it also allows Canada to prove its resilience, reaffirm its place in the global economy, and reassert the value of its trade relationship with the United States. Whether Trump’s tariff threat is a bluff or a new reality, Canadians must take it seriously and respond thoughtfully and strategically.
Now, more than ever, Canada must move beyond complacency and work together to safeguard our prosperity. The same can be said for families that have built a solid foundation to weather times of uncertainty and emerge stronger and more united.
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