Canada seen as ‘low-hanging fruit’ for Trump tariff tactic

With a lame-duck prime minister and a heavy dependency on U.S. trade, Canada may have struck U.S. President Donald Trump as a perfect target for strongarm tariff tactics, Éric Morin says.

Morin, director of global macro and strategy at CIBC Asset Management, said Trump may be expecting a quick political win when he imposed tariffs on Canada.

“Canada is really a low-hanging fruit option for the U.S., because an agreement is highly likely because of aligned incentives,” he said in an interview on Jan. 27 for the Advisor To Go podcast.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Nevertheless, there could be some pain for the U.S. too, he said.

“Several swing states are importers of Canadian machinery, and tariffs could hurt their profitability and represent a political cost for Trump,” Morin said.

Tariffs, he said, have had well-documented economic consequences in the past.

“For the U.S., once they impose tariffs on imports from abroad, it’s typically a stagflationary shock,” Morin said, with slower growth and higher inflation.

While a previous trade war — in 2018-2019 — caused only modest inflationary effects, Morin said this time could be different.

“The economy is much stronger than it was back then,” Morin said. “And the pass-through of tariffs to the consumer may be bigger this time, due to the fact that the economy is stronger.”

For investors, Morin said tariff uncertainties will introduce market volatility.

“It will be increasingly important for investors to have a balanced portfolio and a disciplined approach, and not try to speculate on the short-term policy action by the Trump administration, but instead to focus and stick to fundamentals,” he said.

Despite the near-term turbulence, Morin remains optimistic about Canadian equities.

“The economic backdrop for 2025 is constructive for markets,” he said. “That is also true for Canada, where we expect the equity market to outperform other equity markets in 2025 as a whole.”

To hedge against uncertainty, Morin said investors may want to slightly adjust their portfolio weightings.

“Some tilts in portfolios are possible,” he said, “meaning that slightly higher exposure to defensive assets is something that could be needed if Trump were to be more aggressive on his tariff threat.”

Additionally, he advised lowering exposure to assets tied to the Chinese economy, while maintaining confidence in Canadian equities, suggesting they should rebound in the second half of 2025.

“As the saying goes, after the rain comes the sunshine,” Morin said. “The fact that we expect tariff risks to be short-lived, combined with our macro outlook, is something positive for Canadian assets.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.