Tariffs and trade - "Liberation Day"

As Canada’s new Prime Minister, Mark Carney, stated, Canada’s "old relationship" with the US "is over."¹ The situation continues to be fluid amidst heightened global tensions and a relentless news cycle focused on trade. 

At ATB Investment Management (ATBIM), we understand that it has been an uneasy period for our clients. We continue to believe in an active asset allocation approach. Our portfolio’s asset mix adapts to the evolving market dynamics, maintaining a cautious stance that leans in on our strategic long-term outlook. We believe that a slow and steady approach delivers wins for clients over time.

Our portfolio approach

ATBIM's investment approach to portfolio design is grounded in diversification across asset classes, sectors, regions, styles and sub-advisors. Active asset allocation helps the portfolios adapt to the changing market dynamics, which is particularly relevant today given the fluid trade situation. 

We urge investors to remain patient and focus on long-term investment goals. We remain vigilant, on your behalf, on market opportunities at a macro asset allocation level, while our trusted sub-advisors add value on an individual security level. 

Our globally diversified portfolios are designed to mitigate downside risks and smooth out returns over the cycle for the long term client. Within our fixed income holdings we are tactically overweight investment-grade credit and short-duration bonds to guard against interest rate sensitivity, while capitalizing on attractive spreads at the shorter end of the yield curve. Our equity strategies focus on companies that demonstrate sustainable cash flows, disciplined capital allocation, and reasonable debt management, enhancing their resilience during periods of economic turbulence. Given the rapid and bold nature of the US President’s initial actions, we maintain a cautious stance on significant portfolio changes until market direction becomes more clear. We remain focused on a long-term perspective while staying vigilant to evolving market dynamics and volatility.

Reviewing key tariffs in the current trade landscape

This latest trade news cycle has been overwhelming. The US Administration has proposed a substantial array of tariffs since inauguration day. If fully implemented, the proposed tariffs are estimated to generate over half a trillion dollars of revenue, approximately 2% of US GDP. 

Of the remaining tariffs yet to be implemented, the keywords to watch for include: 

1. Reciprocal tariffs 

These are retaliatory tariffs imposed by one country in direct response to tariffs levied by another.  They will certainly lead to higher costs for business and consumers, cause supply chain disruptions and potential job losses. The hope is to put political pressure to bring the parties together to negotiate a better long term resolution. 

In March 2025, Canada responded to the initial set of US tariffs with 25% tariffs on $30 billion of US imports, targeting agriculture, consumer products, and industrial materials. An additional $125 billion of goods is being considered by Canada. Given the heated rhetoric and looming Federal election in the backdrop, the scope of Canada’s response will likely increase. 

2. Value Added Tax (VAT)-related tariffs

Over 80% of countries around the world implement a VAT as a form of sales tax on domestic consumption. In Canada, depending on where we reside, this tax is called GST or HST. 

The US administration views VAT as more damaging than the traditional tariffs². Despite economists disagreeing with this characterization of VAT as protectionist, it may be used to justify some of their trade actions. Initially, it seems that the US administration has placed Europe in the crosshairs for VAT-related tariffs. 

3. Targeted sector tariffs

The US administration has signalled a strong desire to rebuild specific domestic industries, particularly the pharmaceutical and semiconductor industries. They have been identified as high value and geopolitically sensitive as the US looks to advance its interests in the decades to come. 

There has been a cascading series of announcements made by companies already. Samsung and LG have been broadcasting their intention to relocate some of their manufacturing operations for home appliances from Mexico to the United States. 

Given the smaller footprint of these industries in Canada, the impact for these targeted sector tariffs beyond what has been initially announced appears low. 

4. Universal tariffs 

This one is simplest to understand as it is a blanket percent tariff on all imports that applies to every trading partner. The US administration has announced a universal 10% tariff in addition to country and sector specific tariffs. 

This effectively and systematically slows global trade  and reduces US reliance on foreign goods, encouraging quicker adoption of US manufacturing and reshoring. The obvious response to this would be countries like Canada vying for exemptions as a part of existing agreements like the United States–Mexico–Canada Agreement ("USMCA").

The turbulent trade news cycle has certainly led to some uneasiness in the financial markets, reflected in the more elevated VIX readings (21.9 as of April 2, 2025), a popular index investors often look to that captures short term market volatility of the S&P 500. From trading at all-time highs just six weeks ago, the S&P 500 has moved into correction territory. Across the globe, other regional markets such as Canada, Europe, and Asia have also fallen in local terms. 

The US administration’s inconsistent approach to trade with Canada has dampened consumer sentiment on both sides of the border, reignited patriotic instincts ("Elbows Up"³), and could impact voter behaviour in the upcoming Canadian federal election. 

The path forward  

Based on the US administration’s track record so far, the threats have been more significant than the actions taken when it comes to tariffs. As an investor, it’s important to not assume the worst case scenario as the base case - certainly not yet. Especially relevant in the context of this administration when policy pivots are frequent.

We see the recent market pullbacks  as great entry points for long-term investors. While tariffs are a headwind for equities today, we expect the US administration to shift their focus to the more pro-growth policies on their agenda, such as banking de-regulation and tax reform in the second half of the year. Given the evolving landscape of international trade, particularly the ongoing tariff adjustments and related uncertainties, we are actively monitoring these events and strategically positioning our portfolios while accounting for market developments. All that is to say, it’s important to maintain perspective. 

ATBIM remains committed to guiding our clients through these challenging times. We encourage investors to maintain patience and focus on their long-term investment goals. Our Multi-Asset Strategies team is dedicated to navigating market uncertainties with a steady hand, focusing on long-term, risk-adjusted returns through our purpose-built portfolios.

¹ Prime Minister Mark Carney (March 27, 2025) Press announcement, Ottawa

² (February 15, 2025) President Trump is planning to unveil reciprocal tariffs on Wednesday. Truth Social post.

³ Steele A. (March 6, 2025) ‘Elbows up’ rallying cry evokes memories of Mr. Hockey, CBC News