Trump's 25% Tariffs: How to Respond Intelligently?

2025-02-10

President Trump’s recent announcements imposing 25% tariffs on several Canadian products exported to the United States are understandably causing concern among Canadian citizens and investors. These protectionist measures could harm our economy, weaken certain industries, and impact our investments. However, there are concrete strategies for responding intelligently and minimizing the impact of these decisions. What to DO and NOT to DO When a country imposes punitive tariffs on our products, the temptation to boycott everything American may seem legitimate. However, this approach can be counterproductive. We must be strategic and distinguish between products and companies located in our country.

✅ Support Canadian products: Rather than boycotting American chains like McDonald’s Canada or Costco, which employ thousands of Canadians and sell many local products, it’s more effective to actively choose products and services from home. For example, prioritize local restaurants, cheeses and dairy products, meat, snacks, clothing, aluminum, automobiles, and Canadian agricultural products in your everyday purchases.

❌ Don’t penalize our own workers: Boycotting a business like Walmart Canada because it’s American-owned only harms the Canadian employees and suppliers who work there and sell their products. The best response is to choose Canadian alternatives when they exist and encourage retailers to offer more local products.

✅ Support our exporting businesses: Canadian SMEs that export to the United States will be the most affected by these tariffs. Buying their products directly, buying local, and spreading the word about their offerings is a concrete way to support them.

The Impact on Investments: What to Do? Canadian investors must also adapt to the new economic realities created by these tariffs. Is it unpatriotic to invest in American stocks? The answer is simple: no. Investing in American stocks is not unpatriotic. American multinationals often generate nearly 80% of their revenue outside the United States. What matters is having a diversified portfolio to reduce risk. Avoiding American stocks under the pretext of a trade conflict would be a strategic mistake. The American economy remains dominant in several sectors, and some American companies will even benefit from the tariffs to increase their competitiveness.

That said, it is worthwhile to increase your exposure to Canadian stocks, especially those of companies well-positioned in domestic markets or diversified internationally. Sectors that could benefit from increased support include agriculture, renewable energy, finance, and technology.

How to Adjust Your Portfolio?

1. Assess the sector impact: If you hold shares in exporting companies that are heavily affected (steel, automotive, agriculture), it may be wise to reassess your positions. Some companies will be able to adapt, others will not.

2. Focus on Canadian companies with a focus on Asia and Europe: Trade tensions with the United States could accelerate the development of new markets for Canadian products. Companies that export to other continents will have a strategic advantage.

3. Invest in local infrastructure: If U.S. protectionism slows the Canadian economy, the government could implement stimulus and investment policies. This could benefit companies in the infrastructure and construction sectors.

The effect of exchange rates and how to protect yourself: When trade tensions increase, currencies react quickly. If tariffs harm the Canadian economy, the Canadian dollar (CAD) could depreciate against the U.S. dollar (USD).

What are the impacts? • For consumers: A decline in the Canadian dollar (CAD) makes imported goods from the United States more expensive (gasoline, electronics, some food items). • For exporters: A devaluation of the CAD makes Canadian products more affordable for foreign buyers, which can partially offset the effect of tariffs. • For investors: If you hold USD-denominated assets, their value in CAD will increase, which can cushion some economic shocks. How to minimize risks?

1. Hold USD-denominated assets: If you already invest in the United States, some of your investments will benefit from an appreciation of the US dollar if the CAD falls.

2. Buy shares of Canadian companies. Companies that export in USD: These companies will see their USD revenues increase when converted to CAD.

3. Use US currency accounts: To avoid losses due to exchange rate fluctuations, you can keep some of your cash in USD. This can be useful if you plan to spend money in the United States (travel, online shopping, investments).

4. Diversify your currencies: The euro and other currencies could also be an alternative to limit exposure to CAD/USD fluctuations.

Prioritize economic intelligence over emotional reactions. The 25% tariffs imposed by Trump are a blow, but it is possible to adopt a thoughtful and proactive approach:

• Consume wisely by actively supporting Canadian products, without falling into the trap of widespread boycotts. • Invest strategically by adjusting your portfolio towards resilient companies focused on new markets. • Reduce currency fluctuations by diversifying your investments and taking into account the impact of exchange rates.

Our collective strength lies in smart and strategic economic decisions. Supporting our economy doesn’t mean isolating ourselves, but rather making informed choices to foster our prosperity in a rapidly changing world.

• This publication was prepared by Fabien Major who is a Wealth Advisor for iA Gestion Privée de Patrimoine Inc. and does not necessarily reflect the opinion of iA Private Wealth Inc. The information contained in this text comes from sources believed to be reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on analysis and interpretation dating back to the date of publication and are subject to change without notice. Furthermore, they constitute neither an offer nor a solicitation to purchase or sell the securities mentioned. The information contained herein may not apply to all types of investors.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Regulatory Organization of Canada. iA Private Wealth is a trademark and another name under which iA Private Wealth inc. carries out its activities