What about the Tariffs?????

With the threat of Tariffs on the horizon, many clients have asked,

“What does this mean for my investments, and what should we be doing?”

Our Associate Aravind Sithamparapillai spoke to the Globe and Mail in an exclusive interview for their Stress Test Podcast detailing Trump’s Tariffs, the impact on markets, and why staying invested may still prove a good decision.

We believe that while the answer may still be the same (stay invested) – staying educated and understanding some of what is actually happening to the portfolio can benefit our clients from a peace of mind standpoint. Enjoy!

What are tariffs?

In its simplest form, tariffs are an additional tax the government puts on certain imports. This means the business owner’s cost just increased to import that product. In the case of the USA imposing tariffs, perhaps businesses buying products from our Canadian businesses might be more incentivized to buy from inside the USA, where they don’t face that additional tax, which then hurts our business owners.

What is the impact of tariffs on publicly traded companies then or the stock market as a whole?

Because tariffs are essentially an additional “cost” without any proper way to recoup that cost (it’s not an investment in new technology, etc.), they lead to lower profits. This means, all else being equal, that lower profits do mean lower returns and could mean negative returns, but that depends on what assumptions are already baked into the markets. For example, what if it means that top-tier companies are still profitable but slightly less so? This is what makes that prediction game so challenging.

What about USA companies, then? Should we avoid them?

From an investment perspective – that’s also a difficult intertwined decision to make. The USA has been an exceptional place to invest for the past decade. Additionally – with this recent currency shift and the Canadian dollar weakening – it’s actually been a benefit holding USA or other international investments as that has boosted the return. Now – if tariffs ease off and the Canadian dollar gets stronger – yes, that will detract from USA stock market returns, BUT the key here is that everything is so intertwined it can be hard to point to one specific factor as a reason for holding or not holding something. This is truly a case of diversification being your friend but also – diversification means we will be having something in the portfolio you won’t like at some point.

Is there anything we should do with our portfolio or otherwise?

With your portfolio – no. With your personal finances – yes. If you are in an industry that might be directly impacted by the tariffs (ex. Automotive or Steel) or you are a small business that exports OR imports (Since Canada may launch retaliatory tariffs) – then reassessing the risk of new projects makes sense. Is it worth investing in something to upgrade your production capacity if you potentially have less capacity at this moment? Maybe not. Similarly – an increase in fixed costs like a home renovation might be worth putting on the back burner. As always – this is where an intimate understanding of your situation will make more sense, and we will always be here to help.