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This Is How President Trump’s 25% Tariffs Will Impact the TSX

wealthgram
wealthgram
3 Min Read
This Is How President Trump’s 25% Tariffs Will Impact the TSX

With President Trump now in the Oval Office, Canadians and investors will be watching to see if he follows through on his proposed 25% tariff against Canadian goods. President Trump has said the tariffs are necessary because the U.S. has a $200 billion trade deficit with Canada.

Interestingly, that number is sorely inflated. In 2023, the trade deficit was around $32 billion. But, if you take Canadian oil out of the mix, Canada has a trade surplus with the U.S. of $58 billion.

Still, it looks as if President Trump will go ahead with his international tariff threats against Canada, Mexico, Europe, and China. Chances are good, however, that the tariffs will not happen overnight. The big question, of course, is how will potential tariffs impact Canada and more specifically, the TSX.

More broadly, it has been estimated that a 25% tariff imposed on Canada by the Trump Administration would result in a 2% hit to our gross domestic product (GDP) with job losses topping 400,000. This would increase the Canadian unemployment rate from the current 6.7% to approximately 8%.

What TSX Stocks Should Do Well Despite Tariffs?

On the bright side, the fallout would not negatively impact the entire TSX. Tariffs would certainly hurt the industrial, consumer goods, and material sectors. But, the services sector, which includes financial stocks, could actually experience tailwinds from lower interest rates and short-term bond yields.

Other sectors that would benefit from lower interest rates include utilities, real estate investment trusts (REITs), and telecommunication companies. The current weak Canadian dollar would also benefit the travel and tourism industry.

Taken together, these areas represent roughly 50% of the TSX, as opposed to 30% that are susceptible to President Trump’s 25% tariffs.

It’s also important to note that the TSX is more impacted by the global economy than the domestic economy. There is a 25% correlation between Canadian GDP growth and the TSX. That’s half of the correlation between U.S. GDP and the S&P 500. On top of that, the TSX has a 50% inverse relationship with bond yields. That’s five times larger than in the U.S.

Yes, a 25% tariff from the Trump Administration would be bad for the Canadian economy, but thanks to a weaker Canadian dollar and lower interest rates, the TSX should, on the whole, continue to perform well in 2025.

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