Trade tariffs - It's actually real this time

Our strategic portfolio approach

ATBIM's strategic approach to portfolio design, grounded in diversification across asset classes, sectors, regions, and sub-advisors, enables investors to confidently navigate economic uncertainty.

We encourage investors to be 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 apply thorough expert analysis to our fund holdings, identifying potential impacts and future opportunities at the individual security level. Designed for long-term investment and downside risk mitigation, our global portfolios are tactically positioned with an overweight to higher-quality fixed income holdings and diversified mix equity holdings that guards against market volatility. 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 new US President’s opening gambits, we maintain a cautious stance on significant change until market direction becomes more clear, always keeping a long-term perspective while remaining vigilant to evolving market dynamics and volatility.

Market reaction

To recap, President Donald Trump signed executive orders that imposed tariffs on almost all imports from Canada, Mexico, and China on February 1, 2025:

• 10% on Chinese products (doubled to 20% since the initial announcement)
• 10% on Canadian energy/resources
• 25% on Mexican and Canadian products ex-energy/resources.

The next few hours after that announcement were chaotic. Sharp, perhaps regrettable, words were exchanged online. Boycotts were threatened. But ultimately, it was all much ado about nothing as the US President delayed the effective date by a full month to March 4 once Canada and Mexico acquiesced to some terms on border security. Everyone knows that the initial figures were subject to change as retaliatory measures are to be expected—China’s 10% has already been doubled to 20% since the initial announcement. 

As we know, a delay is not a cancellation. This was the clearest sign of a political leader kicking the can down the road. Markets have not forgotten and trading has been volatile since the announcement. As the date has now arrived, let’s examine how the market response has been since the initial announcement date of February 1.

2024’s US election was said to be the most investable election. Thus far, the price action has not disappointed. 

On the US front, Consumer Discretionary, Communication, and Technology were the dominant sectors heading into the tariff spat. They had the most to lose with some having risen more than 50% in Canadian dollar terms over the past year. Propped up by aggressive valuations, it did not take a lot for investor confidence to be shaken.

Since January 31, Consumer Discretionary fell (-8.7%), Communication fell (-6.4%), and Technology fell (-1.4%). When we consider the strong performance these sectors had put up in the period prior, some amount of profit taking should be expected. Since the announcement, we saw investors rotate away from discretionary to defensive sectors with Consumer Staples (+6.0%) seeing some of the strongest performance to date. Given the risk off sentiment of tariffs, this was to be expected. 

North of the border, Canadian investors saw a slightly different picture. Technology saw a similar fall from grace as it suffered some losses (-3.6%) as investors trimmed their positions after its meteoric rise. Other sectors such as Energy and Materials, which were strong performers in the months leading up to it, saw their rally interrupted. Investors appear to be maintaining a wait-and-see approach with the new administration. Memories of the shortest trade war ever still fresh on their mind - hello Colombia.

Confidence amidst uncertainty

Trade negotiations are inherently a messy affair. It creates a cloud of uncertainty for corporations to operate. With countries as interconnected as Canada and the United States, this becomes even more difficult. We are still in the early days of President Trump’s second term. Throw pent-up emotions and geopolitical factors into the mix, the complications are compounded. How will Canadians ultimately emerge from this trade quagmire remains a point of focus for the portfolio.   

As we move forward, 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. Your financial advisor is a valuable resource and is available to discuss any specific questions or concerns you have about your portfolio.

Source: Bloomberg. All return figures quoted are in CAD as of February 28, 2025. MSCI USA Sector indices and S&P/TSX Composite Sector Indices.