Trump, tariffs and turbulence: What Canadian investors need to know

The U.S. strategy of imposing tariffs as a cudgel to influence other governments will create “bumpy markets and uncertainty” over the next four years, says Corrado Tiralongo, chief investment officer and vice-president of asset allocation with Canada Life Investment Management.

In an interview for the Soundbites podcast, Tiralongo said it remains to be seen if the Trump administration will follow through with tariffs on Mexico and Canada on Feb. 1 as implied. But it has already shown that it is fully prepared to use punitive tariffs to get its way.

“Things will be chaotic,” he said. “One of the things I think for sure is that over the next four years, Canada and the U.S. are not going to be trading any friendship bracelets.”

At the heart of the matter is the U.S. pivot to an extreme protectionist stance.

“The challenge is that the rhetoric right now is in isolationist policy and antagonistic policy, and so it risks fracturing relationships,” he said. “Any way you cut it, we’re highly economically tied to the U.S., and that’s not going to change. But from my perspective, it seems that there is less room for compromise.”

Tiralongo said his view is that new U.S. tariffs are inevitable, and that Canadian businesses need to prepare for them.

“My view is that tariffs are coming. What’s unclear is how much the tariffs will be, whether they’re going to be 10% universal tariff, or they’re going to be 25% on select goods. The timing is unclear. The amount is unclear. The goods and or services that will be subject to tariffs are unclear. But my opinion is that a 10% universal tariff is the likely outcome, which would impact Canadian exports but not likely cause a recession.”

He said the harsher possibility of a 25% tariff on Canadian goods would be crippling.

“That would be a significant event to the Canadian economy,” Tiralongo said. “We estimate that [would] reduce GDP by 3%, driving Canada and Mexico into a recession.”

Canada’s energy, automotive and agricultural sectors would be hit the hardest.

“Investors should monitor these sectors and consider reallocating to more resilient industries,” Tiralongo said.

While Canada could pursue mitigating strategies, like diversifying trade relationships abroad, those would likely be long-term projects that would not bring quick relief.

“Strengthening ties with emerging markets such as India and Southeast Asia are critical,” Tiralongo said. “Investments in domestic manufacturing and infrastructure would reduce exposure to external shocks. Additionally, negotiating sector-specific exemptions with the U.S., particularly for energy and automotive goods, could limit immediate impacts.”

Canada has already begun planning counter-measures like tariffs of its own on specific items like Kentucky bourbon and Florida orange juice — targeting pro-Trump regions and sectors in the U.S.

In such an environment, Tiralongo said Canadian investors need to diversify and be vigilant against what he called “unintended bets in specific sectors or countries.”

“Diversification pays benefits over time,” he said. “It is going to be a difficult time, but we foresee that global economic growth is still going to be positive — below trend than what we’ve seen over the previous 10 years — but high enough that it’s going to support equity markets and other risky assets. It’s just not a time to take significant bets across client portfolios.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.