Over the weekend, the US President signed an executive order to impose tariffs on goods from Canada, Mexico and China. To be precise, 25% on goods from Canada and Mexico and 10% on goods from China. There is also a 10% tariff on Canadian Energy.

The Canadian Government responded quickly with retaliatory tariffs on various US goods which would be implemented in phases. As I write this, the situation is evolving and changing while negotiations are taking place.

As always my personal goal is to write this in plain-English and remove hyperbole, so you can succeed as an investor.

US/Canada Trade Deficit:

While President Trump has stated that the US “subsidizes” Canada to the tune of $200B, this is not the case. The fact is the trade deficit is $55B overall, which is partially attributable to the fact that the US is the largest economy in the world, with almost 10x the population of Canada. This places the US in a unique position to buy more goods. Furthermore, the US is largely a service-based economy rather than a manufacturing economy. Trade balances do not account for service – only goods. See below a table from the US Census Bureau showing the trade balance in 2024 between Canada and the US.


Source: United States Census Bureau



Economic Impact

The impact of these tariffs depends largely on their duration. I believe tariffs are inflationary in the short run as the cost would trickle down across supply chains and ultimately the consumer. Tariffs of these magnitudes are likely used as a harsh negotiation tool to influence policies and retaliation is expected. While I cannot put myself in the mind of President Trump or anyone else, I don’t think the intention is to keep such wide-reaching tariffs on the long run since nobody wins trade wars. In the short run, the US is in a stronger position to absorb the shock compared to Canada. There is a wide range of possible economic outcomes across the world depending on the duration of the nature and the duration of the tariffs. Here is an economic model estimating the cumulative effect after a hypothetical 2 years of persistent tariffs of various magnitudes. Keep in mind, there is no way to predict the future and these models are made with broad assumptions.




Canadian Dollar

The currency market reacted quickly to the tariff announcement. We saw the Canadian dollar depreciate more than 4% since President Trump’s election. Less export to the US means less demand for Canadian dollars. In addition to that, Canada’s policy rate is at 3% while the US Federal Reserve is at 4.5% which contributes to lower demand for our dollar. If the Central Bank responds to a domestic economic shock by lower rates, this could hypothetically lower demand for our dollar further. Having said that, It is challenging to know how much of this thesis is already priced in.

The silver lining however is that a lower Canadian dollar could make exports to foreign Countries more attractive and this could help buffer some of the economic impacts.

The Petrov Volatility Survival Guide

When I construct the portfolio, I already take into account the fact that there will be bad news, unforeseen circumstances and constant change. My process is designed to weather storms in perpetuity.

Precautions taken

• Different families have different asset mixes depending on their financial plans and risk profiles. For those who tend to worry about volatility, I have likely already allocated some portion of their portfolio to fixed income investments.
• I have a rebalancing strategy in place so that we can deploy capital in great companies should they become priced even more attractively.
• On the equity side, I diversify outside of Canada. Many Canadian investors make the mistake of being overweight Canadian equities. In the Petrov models, I allocate significantly more to US equities, in US dollars. As such, we are uniquely positioned not only to benefit from exposure to stronger companies, but also from a weakening Canadian dollar.
• I diversify by sector and I don’t allow major overweight in any one sector.
• I only invest in the best companies in each industry that demonstrate sound business models, competent management, and financial health. These are companies that are in unique positions to weather storms and get through to the other side.
• I invest in these companies while asking myself “If the market was closed for the next 5 years, would I want to own them?”. If the answer is yes, then I will own them.

Reminder: “Timing the Market” vs “Time IN the market”

The classic scenario is when uncertainty comes (as it will in perpetuity), an investor may say: “I will get out of markets now while things are uncertain and I will get back in when things look more stable”. In theory this sounds good, but prices tend to be higher when things are more certain. Attempting to time the market is a losing proposition. Two points:

1. The best and worst trading days tend to occur in clustered periods:

2. If you miss even a few of the best trading days, your long-term annualized returns are severely reduced.

Monitoring the situation

My team and I are closely monitoring the situation as things are changing quickly. The important thing is that I have modeled my strategy to be able to sustain even the worst case scenarios. The difference between investment success or investment failure ultimately depends on an investor’s ability to remain focused on the proven principles.

I am here to guide you

As a fiduciary, I am deeply committed to seeing my clients win first and foremost. My eyes are on the road and my hands are on the steering wheel and we are headed to success together. If you have any questions or concerns, please feel free to reach out.

Yours truly,
Alexander Petrov