Given the current state of uncertainty, it is helpful to examine the tariffs imposed during the first Trump administration to estimate the Canadian market reaction to the volatile U.S. trade policy that we see today. From June 2018 to mid-2019, the United States imposed a 20% tariff on softwood lumber, followed by a 25% tariff on steel and a 10% tariff on aluminum products. Canada imposed retaliatory tariffs on roughly $16.6 billion worth of U.S. imported steel, aluminum, maple syrup, shaving products and other consumables. At the implementation of the 2018 steel tariffs, Canadian exports of steel products to the United States declined by 37.8% and exports of aluminum products declined by half. Canadian consumers would have experienced the impact of tariffs on several levels, such as a depreciation of the Canadian dollar alongside higher prices. At the same time, investors appeared to be unfazed during the 2018–2019 tariff disputes. Despite the temporary pull-back due to U.S. interest rate hikes at the end of 2018, as shown in Figure 1 below, the S&P/TSX composite gained roughly 5% over the period when the 2018–2019 tariffs were imposed against Canada, and the S&P 500 gained around 7%. Figure 1: Stock Market Performance in the United States and Canada under Steel and Aluminum Tariffs (2018–2019) Figure 1: Stock Market Performance in the United States and Canada under Steel and Aluminum Taris (2018–2019)
Approximate Tariff Enforcement Period
S&P/TSX
S&P500
125
120
115
110
105
100
95
90
In comparison with tariff policies announced this year, the 2018–2019 tariffs targeted specific goods and industries and the duration proved to be short. Although the 2018–2019 tariffs created turmoil for certain industries, the 2025 tariffs were enacted in a relatively more fragile geopolitical and macroeconomic context. So far, U.S. tariff policies have caused sharper market swings, and the scale, scope and duration of trade policy worldwide are altogether harder to predict. Further, with essential goods and the supply of energy products being considered in tariff negotiations, consumers may feel the pinch faster and companies may be less willing to absorb costs, even though the same companies may have been willing to ride out short-lived volatility in the past.
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Davies | dwpv.com
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