The Tariff Tango

Why Canada's Economy Has More Resilience Than Headlines Suggest

Woke up to panicked headlines and social media posts about Trump's tariffs on Canada? Before you liquidate your portfolio -and your Jack Daniels- to start hoarding cheese curds, two-fours and maple syrup, let's take a breath and look at the situation with a bit more nuance.

What's Actually Happening

On March 4, 2025, the U.S. implemented a 25% tariff across all imports from Canada, with a reduced 10% tariff on energy products. Canada swiftly responded with retaliatory 25% tariffs of its own. Yes, this sounds alarming—and it is certainly serious—but there are solid reasons to believe this won't be the economic catastrophe some are predicting.

Volatility Is the New Normal (But That's Not All Bad)

The Trump administration is churning out executive orders at a dizzying pace. This policy whiplash creates market uncertainty and volatility—something we're all feeling in our investment accounts right now.

But here's the best thing about volatility: its NEEDED because it creates opportunities. While your portfolio might be on a roller coaster ride, carefully chosen high-quality stocks and bonds by fund managers are looking increasingly attractive. Market dips often present buying opportunities at discount prices. (See below)

Canada's Economic Airbags Are Inflated and Ready

Despite the headline-grabbing tariff news, according to NEI/Aviso, Canada has several built-in shock absorbers:

? Rate cuts in the holster: While other central banks might be running low on ammunition, the Bank of Canada still has bullets in the chamber. They can pull the trigger on further interest rate cuts to juice economic activity right when businesses need it most.

? Loonie's silver lining: That annoying exchange rate that makes your Florida vacation more expensive? It's actually a superhero cape for Canadian exporters. When our dollar dips, it helps offset those tariffs by making our goods more attractive in other markets.

? We're not all aluminum and autos: Despite what you might think, the Canadian market isn't dominated by the sectors Trump's tariffs hit hardest. We actually have surprisingly high exposure to companies that make money outside Canada – a natural hedge against domestic economic storms.

Already on discount: Canadian stocks have been trading at bargain basement valuations compared to their American counterparts. When you're not priced for perfection, you have less room to fall when things get rocky. Think of it as starting on the ground floor instead of the penthouse when the building catches on fire.

Looking at the "Wall of Worry" in Context

If you look at the historical "wall of worry" chart that National Bank recently published, you'll notice something striking: markets have climbed through the 2007-2009 financial crisis, the 2011 U.S. fiscal cliff, the 2015-2016 market selloff, the 2020 COVID pandemic, and the 2022-2023 central bank rate increases.

This perspective matters. While we should take the tariff situation seriously, history suggests that well-diversified portfolios of quality investments tend to weather these storms—and even find opportunities within them.

What This Means for Your Portfolio

The businesses you own through your investment funds likely share some important characteristics that provide resilience:

? Diversification across sectors and geographies

? Strong and competent management

? Robust financial positions

? Adaptability to changing market conditions

That's not to say there won't be volatility or challenges ahead, but the management teams have worked hard to find resilient businesses to own and that is something to count on.

Your Secret Weapons:

1. Your Existing Global Diversification

Let's talk about an ace up your sleeve that its easy to forget about during tariff talks – your existing global diversification.

Your portfolio already has a healthy weighting in U.S. and global assets. This isn't some brilliant tactical move you need to make now – it's basic diversification that is already built into your investment strategy. So…Here's where it gets interesting: if these tariffs push the Canadian dollar lower (which seems likely), that international portion of your portfolio could actually cushion the blow – or even turn this supposed crisis into a portfolio booster.

When the loonie drops, those U.S. dollars, euros, and yen in your portfolio automatically become more valuable in Canadian dollar terms. Let's put some real numbers on this: if the Canadian dollar falls 5% against the U.S. dollar, your U.S. investments instantly gain 5% in Canadian dollar terms – without the underlying investments changing in value at all. That's like getting free returns just for being properly diversified.

This currency effect isn't some theoretical concept – it's a practical buffer that has protected you during previous periods of domestic economic stress. During past Canadian slowdowns, this currency advantage has often been the difference between portfolios treading water and actually growing despite domestic headwinds.

So while headlines scream about tariff troubles, your globally diversified portfolio is quietly working in your favor, turning a geopolitical challenge into a potential opportunity. Sometimes the best investment moves are the ones you've already made.

2. Locked and Loaded: Your Portfolio's Hidden Dry Powder

Here's something the panic-inducing headlines won't tell you: quality money managers have been quietly preparing for a market hiccup long before tariffs entered the conversation. The fund managers have been strategically raising cash levels within their portfolios. This isn't because they had a crystal ball about Trump's tariff plans – it's because experience taught them that markets rarely move in one direction forever.

This cash reserve – what investment pros affectionately call "dry powder" – serves multiple purposes in times like these:

First, it acts as a natural shock absorber. When markets get rocky, the cash portion of your portfolio doesn't drop in value, automatically reducing overall volatility.

But the real magic happens when that dry powder gets deployed. While amateur investors are panic-selling (often at the worst possible time), seasoned portfolio managers are using their cash reserves to go shopping for high-quality businesses at markdown prices. They're essentially converting market chaos into opportunity.

So while headlines focus on short-term tariff turbulence, your portfolio likely has built-in resilience through strategically accumulated cash reserves – ready to transform market volatility from a threat into a wealth-building opportunity. Sometimes the best offense is having defense already in position.

The Path Forward

There's reason for cautious optimism that this trade tension won't become permanent. Two factors could lead to the lifting of these tariffs:

1. Negative market reactions may prompt the U.S. administration to reconsider

2. Pressure from American consumers and businesses facing higher costs likely will drive policy changes

Until then, the smart approach is what I have cleverly called "sticking to the plan"—avoiding short-term reactionary decisions while remaining vigilant about quality businesses trading at attractive prices.

The Bottom Line

While headlines about tariffs make for scary reading, Canada's economic and market resilience shouldn't be underestimated. The combination of monetary policy flexibility, fiscal capacity, currency advantages, market composition, and reasonable valuations creates a buffer that many aren't fully appreciating.

This isn't a time for panic—it's a time for patience and perspective. After all, Canadian markets have climbed many walls of worry before, and they'll likely climb this one too.

Mutual funds, approved exempt market products and/or exchange traded funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and other expenses may be associated with mutual funds are not guaranteed, their values change frequently, and their past performance may not be repeated.

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was written, designed and produced by Kevin Cork for the benefit of Kevin Cork who is a Financial Advisor at The Absolute Group a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this article 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 securities. Mutual Funds, approved exempt market products and/or exchange traded funds are offered through Investia Financial Services Inc.?

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