Tariff Update and Impact Assessment
A brief update on this constantly evolving situation.
In recent months, one of our most common inquiries from clients has been about the potential impact of Trump's tariffs. Last weekend, it was announced that the U.S. would implement a 25% tariff on Canadian imports, with the exception of energy, which would be subject to a 10% tariff. Mexico will also face 25% tariffs, alongside an additional 10% tariff on imports from China.
This was quickly followed by an announcement that the tariffs on Canadian and Mexican imports would be ‘paused’ for 30 days.
Trump has indicated that these tariffs are being implemented due to what he perceives as Canada's and Mexico's complacency regarding the flow of fentanyl and illegal migrants crossing from both countries. He has also claimed that the U.S. subsidizes Canada by $250 billion (a figure that is inaccurate) and has suggested that Canada should consider becoming the 51st state of the U.S. It is perplexing that Canada faces the same level of tariffs as Mexico and higher than China. In 2024, the U.S. seized over 21,000 pounds of fentanyl coming from Mexico, but only 43 pounds from Canada. Ironically, more fentanyl actually enters Canada from the U.S. than the other way around. China is also a major producer and source of fentanyl, yet it is subject to only a 10% tariff.
Regarding illegal migration from Canada to the United States, U.S. Customs and Border Protection reported 198,929 "land border encounters" in 2024. This figure is dwarfed by Mexico's 2.135 million encounters.
Examining the U.S. trade deficit with Canada, 29% of Canadian exports consist of energy. If we exclude energy from this analysis, the U.S. would actually have a trade surplus with Canada. Furthermore, the oil Canada sells to the U.S. is typically priced at a significant discount compared to U.S. oil prices—usually by $10-20 per barrel—due to Canada having an excess oil supply and limited capacity to ship it globally. In addition, U.S. oil production only meets about 65% of its requirements, necessitating imports, with Canada supplying over 60% of the gap at attractive prices.
In response, Canada announced reciprocal tariffs on CAD $155 billion worth of U.S. imports. Meanwhile, Mexico indicated it would impose its own tariffs but had not announced specifics. China stated it would open a dispute with the World Trade Organization and implement targeted tariffs against the U.S.
Initially, these tariffs in Canada and Mexico were set to begin on February 4th but have since been delayed by 30 days after the Mexican President and Canadian Prime Minister spoke with Trump and explained the measures they would take to secure the border (measures they were already implementing).
So how did JCIC’s portfolios perform on Monday when concerns about tariffs peaked? Our portfolios demonstrated strong resilience. Significant Canadian exports to the U.S. are dominated by energy, automobiles, auto parts, base metals (copper, aluminum), chemicals, lumber, and agricultural products. We have no exposure in our portfolios to automotive manufacturers or auto parts suppliers. Additionally, there is no exposure to base metal mining, chemicals, fertilizers, or lumber suppliers exporting to the U.S. While we do have some exposure to Canadian energy exports, the market had already discounted tariff fears into stock prices, making the 10% tariff tolerable. As a result, our Canadian equity exposure declined only modestly and significantly less than the overall market.
We also invest in U.S. and international equities, which experienced only a slight decline when converted back into Canadian dollars (the Canadian dollar initially weakened in reaction to the tariffs but has since strengthened). Our fixed-income exposure rose on Monday, as tariff fears increased the likelihood of lower rates from the Bank of Canada, which in turn brought down the entire bond yield curve to reflect risks of slowing growth. Overall, our JCIC Balanced Fund and JCIC Equity Fund experienced only a minor decline, still showing encouraging year-to-date returns.
We continue to monitor the evolving situation between the U.S. and the various countries it has threatened with tariffs. We are analyzing areas of potential vulnerability to a trade war to assess if any repositioning is necessary. However, we feel very comfortable with our current positioning following the tariff announcements and are exploring potential opportunities when market fears lead to discrepancies between stock prices and fundamentals.
Kai Lam, CFA, CFP
Chief Investment Officer
As your portfolio managers, our goal is to make investing easier for you. If you have questions about any of the above, or simply want to discuss the financial markets, please feel free to reach out to us. We're always happy to talk about your investment journey.
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