What Do Tariffs Mean For Your Portfolio?

What Do Tariffs Mean For Your Portfolio?

Much can be observed about President Donald Trump’s recently enacted 25% tariffs levied against Canada and Mexico on March 4, 2025. Tariffs can be used for many purposes, such as to raise money without increasing income taxes on citizens, and to give domestic businesses an advantage over foreign adversaries. However, none such measures seemed to have motivated the Trump administration, who cited cross-border immigration and drug concerns, as well as perceived trade imbalances as primary motivations. Whatever the reason, we as Canadians find ourselves amidst growing uncertainty about how this will impact us. Questions such as how long these measures will last and the impacts it will have are as valid as they are difficult to forecast. The purpose of this blog post is to comment specifically on what the tariffs mean for your portfolio as a Canadian investor.

To answer this question, the relevant disclaimers must first be made. To start, the facts of this situation continue to change daily, and any assumptions such as timelines, retaliatory tariff measures and even who our federal leadership will be remain just speculation. There are simply too many unknown and unknowable factors to provide an accurate forecast based only on one data point being tariffs. However, to handle such level of uncertainty we can look at both history as well as forward-looking forecasts to gain reasonable assumptions.

For the record, tariffs are understandably not welcomed news for any economy. Anytime the free market must deal with additional costs, it forces companies into a damned if you do, damned if you don’t type of scenario. Companies must now choose to either absorb these higher costs, resulting in less profit for them, or to increase prices, which may lower their sales. There is compelling research from economists at Goldman Sachs that suggests these 25% tariffs may decrease profitability by up to -10% for U.S. companies within the S&P500 index, which is a collection of the 500 largest U.S. companies. How will this translate to stock performance?

This will delve into the realm of speculation, but historically speaking, it will have an initial impact in the short-term, but a muted impact over a longer period. Take Trump’s first term for example, in 2018 measures were taken to impose tariffs on China. The bar chart below shows how the stock market reacted to the tariff announcements. Historically, the U.S. stock market fell by -5% in total on days where tariff measures were announced since 2018. On days where other countries announced counter-tariff measures, the U.S. stock market fell slightly more by approximately -7%.

This may give cause for concern; however it must also be noted that despite this, the broader performance of the U.S. stock market under both Trump and Biden was nothing short of fantastic. This is because stock market performance is a result of countless factors, not just one single data point i.e. tariffs. Despite U.S tariffs being imposed on China during Trump’s term and maintained throughout Biden’s term, the U.S. stock market gained an impressive 50.9% cumulatively from 2016-2020 under Trump and a further 48.9% during 2020-2024 under Biden.

This represents an average return of approximately 10.73% annually, which outperforms the 90-year historical average of the U.S. stock market. All this despite significant headwinds including tariffs on China, geopolitical conflicts erupting into wars, a global pandemic that crippled economies for months on end, forcing government relief spending to increase which ultimately led to significant increases in inflation. Given all this context, investors can take solace in the continued resiliency displayed by the world economies and ultimately the global stock markets.

Final Thoughts

Circling back to the topic on all our minds, and rightly so, is what impact tariffs will have on us as Canadians. The truth is that no one can provide a definitive outlook on the length and severity of these tariffs at this time. However, speaking from an investment perspective, the well diversified investor with a long-term outlook can take comfort in knowing they’ll be just fine.