This Saturday, the U.S. will impose a 25% tariff on imports from Canada and Mexico, marking what could be the opening move in a broader return to trade protectionism. Or they won’t—the uncertainty that marked the first four years under Donald Trump are back in force. While markets seem to be treating this as a temporary speed bump, history suggests otherwise: once tariffs go up, they tend to stick around longer than expected.

Markets—always eager to look past short-term disruptions—appear to be betting that these tariffs will be either brief or inconsequential. That seems optimistic. Disrupting established supply chains doesn’t unwind cleanly, and higher costs for businesses often find their way to consumers. We’ve seen this play out before, and the economic consequences tend to be uneven, sometimes unpredictable, but rarely painless. (Trump Tariffs: The Economic Impact of the Trump Trade War - The Tax Foundation)

Where We Stand: Canada and U.S. Economic Outlooks

Canada’s economy was already walking a narrow line—interest rate cuts and stronger household spending were giving growth a lift, but now we have to factor in how these tariffs could shake things up. I don’t expect the ride to be without its bumps, especially with retaliatory actions by Canada likely forthcoming, and with a Canadian election thrown in the works. Key industries, particularly autos, manufacturing, and energy, are tied tightly to U.S. trade, and increased costs here could put a drag on the recovery. (Canada’s growth prospects brighten in 2025 but not without challenges - RBC Thought Leadership)

In the U.S., the story is probably going to be one of short-term resilience but longer-term uncertainty. Growth has been solid, fueled by strong government spending and consumer demand, but tariffs inject a new layer of risk. While Washington is positioning this as a way to protect American industry, history tells us that trade barriers usually end up raising costs, not just revenue. (Trump Says He’ll Impose Canada, Mexico With 25% Tariffs on Feb. 1 - Bloomberg)

What This Means for Investors

Markets are complicated, but some things remain true: there’s always a way to invest wisely, even in messy conditions. The challenge now is that it may take a little more finesse.

• Volatility is likely to increase. Trade policy is unpredictable, and knee-jerk market reactions don’t always get the full story right. Staying disciplined is key.
• Selectivity matters. Not all companies will absorb these changes equally. Businesses with pricing power, strong supply chains, and diversified revenue sources will be better positioned.
• International exposure is a lever. If protectionist policies persist, markets outside North America may offer relative advantages.
• Non-traditional, uncorrelated assets such as infrastructure, commodities, private equity and debt, and precious metals will likely form important parts of portfolios in the future, though risks must be taken into account given their relative illiquidity, esoteric nature, and (typically) leveraged investment.
• Bonds and other fixed income investments will likely be important assets both for their ability to hold value and be a safe haven when stock market returns are less certain, but also as a source of liquid capital for taking advantage of stock market weakness.

None of this is a cause for alarm: markets adapt, and so do investors. The key is to avoid reactionary moves and focus on where value and opportunity remain. There are always places where capital can work harder. The difference now is that it may require a steadier hand and a sharper eye.

• Further Reading:

• A playbook for how to measure a tariff shock in Canada | RBC Thought Leadership - This is an absolute must-read by our new Chief Economist, Frances Donald. I had the pleasure of seeing Frances in Toronto in January, and she doesn’t mince words.
• Canada Confronts U.S. Protectionism | RBC Wealth Management - A good overview from our colleagues at RBC Wealth Management.
• Global Insight Weekly: Market & Economic Research | RBC Wealth Management - for more news from around the investing world. Though, to be fair, more of this is taken up with tariff talk, too.
• A 25 Percent Tariff on Canadian and Mexican Imports Would Reduce Consumers’ Average After-Tax Income by 1 Percent | Tax Policy Center - Well would you look at that. Research does show that it's the importing nation's consumers who pay for tariffs...
• Seven Charts Showing How Canada/Mexico Tariffs Would Harm the US Auto Industry (and American Car Buyers) | Cato - When the Cato institute is against you, you know you did something likely to be not-too-popular with the Main Street crowd.
• U.S. Petroleum Trade: Crude Oil Imports from Canada and Mexico and Potential Tariffs | Congressional Research Service - This was a quite interesting piece, from inside the US establishment, no less. While WCS spreads widening would certainly not be great for Canada, Americans have proven acutely tuned in the past to the price of a gallon of gas.

As always, I’m happy to discuss this further; please reach out if you have questions.

Best,

Sam