The Impact of Tariffs
- Adam Schacter
- Feb 24
- 4 min read
My younger brother has been bigger than me, physically, since I was 5 and he was 4… When he was 6, I started wearing his hand-me-downs for all the clothes he grew out of. He was an incredible athlete; big, strong, fast, and coordinated.
If he really wanted something from me, he could overpower me, and there wasn’t really much I could do about it. But we cared for each other, so it didn’t happen often, and when it did, I tried to lose as little as possible. And when he won, which was often, he wouldn’t win too big as to upset his best playing friend too much to have me look elsewhere for a companion.
When we would fight (as brothers do), I would need to come up with calculated ways to level the playing field, sometimes using the leverage of my 13 months older brain, catering to my strengths, and sometimes looking for someone else to play with if need be.
But we were brothers – close as can be. We grew up side-by-side, shared the same values and ideals, and were inextricably linked.
I couldn’t help but chuckle a bit while reading about the proposed tariffs coming from the USA on Canadian imports. It felt like somewhat of a familiar feeling, albeit still uncomfortable.
Since the start of February, the USA (Canada’s metaphorical bigger sibling) starting a squabble with Canada to get what it wants. In the end, it will (to some degree) get what it wants; it is the bigger brother, after all…
If I’m being short-sighted, the immediate impact on tariffs imposed on Canada is that the costs of consumer products to US residents would increase (no effect on Canada). Canada, in turn, may impose tariffs of their own, which would cause upward pressure on goods and products here to Canadian residents.
Over the medium term, tariffs imposed to Canadian products will have downward pressure on the Canadian economy. As our bigger brother and largest customer, the US resident would pay more for goods coming from Canada, and this may price out the Canadian company providing the goods, in favor of an American company who is not handicapped by price tariffs.
Here is an example on if the US imposes a 25% tariff on widgets coming from Canada:
In this example, Canada can produce widgets at a much lower cost than the USA, let’s say $1.00 versus $1.15. As such, the US resident enjoys widgets at a lower cost since these widgets are imported from Canada to the US consumer. If the US imposes a 25% tariff on widgets coming from Canada, then the cost to the US consumer would increase to $1.25/widget. As such, it would benefit the US consumer to buy it from a US company at a cost of $1.15.
As you can see, the cost of the consumer product increases to the US consumer, while the Canadian company just lost its biggest customer…
Who wins in this scenario?
Over the short-term, the Canadian consumer continues to enjoy widgets at a price of $1.00 (less than what a US resident would pay), and the US widget provider would strongly benefit from the increased market share. Over the long-term, the Canadian widget provider may need to look elsewhere for widget consumers, and may be put out of business, eventually raising the costs of widgets for the Canadian consumer with less widget competition.
If you’re keeping score, the Canadian consumer does not lose here over the short and medium term (unless reciprocal tariffs are imposed from Canada on US products, then the reverse would be true). The big losers in this example are the American consumer, who need to pay more for goods, and the Canadian widget company, who lost their biggest customer. The winner? The US widget company – now with a better economical landscape to do more business in its own country - the biggest consuming country in the world.
Other impacts to be mindful of:
Currency (USD)
Less imports for the US means lower demand for foreign currency, strengthening the US dollar versus other currencies. This would put downward pressure on the US travel and tourism industry
Trade balance boosts confidence in the US economy, which in turn boosts confidence in the US dollar, which is held as a trusted reserve currency by international central banks and governments.
Higher prices on goods typically lead to higher interest rates, which may mean interest rates don’t go down by as much as anticipated. As such, US treasury bonds would be in higher demand, putting upward pressure on the USD.
Less outflow of US dollars by the US would restrict the supply of USD somewhat to the world, lowering supply of USD.
Interest Rates in Canada
Canada has been more aggressive in lowering interest rates than the US. If reciprocal tariffs are imposed on the US, then prices of goods here in Canada would increase, putting pressure to increase (or stop decreasing) interest rates.
If the Canadian economy sputters due to the US imposed tariffs, it would put downward pressure on interest rates to help stimulate the economy.
With respect to your portfolio, and with a longer-term financial landscape in mind, we already made changes to the portfolio in December 2024, which aimed to move some assets out of Canadian equity, decrease the underlying positions in Canadian dollars (CAD) (although your accounts still show market values converted into CAD), and increased our positions in international equity, infrastructure assets, fixed-income assets, and underlying US dollars (USD).
You can access this in the most recent Market Perspective - Winter 2025 from last month.
For resources and reasearch, there is a lot of noise out there, and I have found the following articles to be useful with respect to the impact of proposed and imposed tariffs (both ways):
In the end, I believe the US will flex to get what it wants from Canada, but only to a certain degree. It can’t have its little brother go looking elsewhere for trading companions.
I hope you find this both interesting an
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