Executive summary

• The U.S. Supreme Court limited presidential authority to impose sweeping tariffs under emergency powers, reinforcing congressional control.
• Tariffs remain central to U.S. industrial policy but are likely to emerge through slower, more durable legislative channels.
• Canada remains highly exposed given deep export integration with the U.S. economy.
• The upcoming North American trade review is likely to be a source of volatility, particularly in currency markets
• The success of portfolios will come down to portfolio construction and ensuring trade-impacted sectors are de-emphasized as we go into this known event risk.

Trade policy has moved back into the foreground for markets in 2026. This is not because tariffs are new, but because the rules governing how they can be used have changed. A recent decision from the Supreme Court of the United States has reshaped presidential tariff authority just as North America approaches a critical review of its continental trade framework. For Canadian investors and business owners, the implications extend well beyond headlines or politics. They touch currencies, supply chains, corporate earnings, and ultimately portfolio construction.

A Court Decision With Market Consequences

In February, the Court ruled that broad tariffs imposed under emergency economic powers exceeded the scope originally intended by Congress. The administration had relied on the International Emergency Economic Powers Act (IEEPA) to justify sweeping duties tied to national economic concerns, but the Court’s reasoning was straightforward: tariffs are fundamentally a legislative tool. Congress may delegate authority, but it cannot be bypassed through expansive emergency declarations. For markets, the ruling matters less for what it prohibits than for what it signals. Over the past several years, investors have grown accustomed to abrupt tariff announcements arriving with little warning. Those moves could instantly alter sector outlooks - autos one month, metals the next - creating short bursts of volatility across equities and currencies. Given the upcoming mid-term elections, we don’t expect the cadence of White House announcements to slow down.

Don’t get your hopes up - tariffs are staying

Washington continues to pursue an industrial policy centred on domestic manufacturing resilience and supply-chain security. New tariff measures remain in place, including baseline duties applied globally alongside targeted sector actions tied to strategic industries. In lieu of the now disallowed IEEPA tariffs, the administration has announced it will go ahead with 15% tariffs under Section 122 of the Trade Act of 1974, to be supplemented with more durable tariffs under different statutes in the fullness of time. We need to remember that the President has been a tariff enthusiast for decades, and we expect it to remain part of U.S. policy so long as he is in power, and perhaps well after. Recall that many of the Trump 1.0 tariffs stayed on through the Biden administration. From a market perspective, tariffs have largely lost their power to shock, with “Liberation Day” marking the apex of the markets’ tariff anxiety. While it is possible that could one day be exceeded, we don’t see anything on the horizon to expect such an outcome anytime soon.

Next up - USMCA

As we are all well aware, few economies are as exposed to American trade policy as Canada. Roughly three-quarters of our exports flow into the United States, binding manufacturing, agriculture, and energy supply chains tightly together. When tariffs shift, Canadian producers often feel the effects immediately through pricing pressure or disrupted sourcing decisions. Recent disputes involving metals and autos have already demonstrated how quickly trade policy can ripple through the Canadian economy.

Later this year, North America enters the scheduled review period of its continental trade agreement. This is a process designed to confirm continuation rather than reopen negotiations entirely. Still, reviews create leverage opportunities and historically, the U.S. executive branch has used tariff threats as negotiating pressure. We expect this time to be no different, and would not be surprised to see the U.S. announce a withdrawal from the pact as their opening gambit. Importantly though, as we approach the U.S. elections, pressure may start to build on Republicans to secure a deal given the number of red states that have significant trade relationships with Canada.

Portfolio Implications: Focus on the outcome, not the bombast

Our main objective as investors is not to forecast political outcomes, as in our experience this has been a losing strategy. As we have seen in the past 13 months, unpredictability has become a hallmark of the U.S. administration’s negotiating style, and it has upended markets on more than one occasion. The most likely transmission mechanism in markets surrounding trade is likely to be the Canadian dollar. A “status quo” outcome, or something close to it should allow the loonie to trade on its own merit as opposed to as a U.S. trade risk barometer. Should Canada come away in an objectively poorer position, the Canadian dollar would act as a release valve, likely depreciating in order to offset higher U.S. levies. Currencies are as notoriously difficult to predict as the actions of politicians, and the main focus for investors should be portfolio construction. The majority of the TSX index looks nothing like the Canadian economy, providing a firebreak of sorts between what may happen to our export economy and what it could ultimately mean for portfolios. We believe it is prudent to hold a portfolio that can succeed in a broad variety of economic outcomes, and that logic applies to Canada/U.S. trade as well.
 

The Harbour Group
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