The Canada – U.S. Trade War

The Canada – U.S. Trade War

What It Actually Means for Your Money, Investments and Retirement

Turn on the news, and you will hear words like tariffs, counter-tariffs, trade negotiations and protectionism. For many Canadians, it sounds like something happening between politicians in Ottawa and Washington. But a trade war isn’t confined to politics. Eventually, it can reach your grocery cart, your job, the price of a new car, the value of the Canadian dollar, interest rates, the stock market, and the income you rely on in retirement. So let’s forget the political arguments for a moment and answer a much simpler question:

What does a Canada-U.S. trade war mean for you?

First: What Is a Trade War?

Think about two neighbours who buy a lot from each other. Canada sells products to the United States. The United States sells products to Canada. For decades, our two economies have become deeply connected. Cars, lumber, steel, energy, food, machinery and countless other products cross the border every day.

Now imagine the United States says: “When Canadian Product X enters our country, we’re going to charge an additional 50% tariff.” That tariff is essentially a tax placed on the imported product.

Canada may respond: “If you’re putting tariffs on our products, we’re putting tariffs on some of yours.” That is a counter-tariff.

When both countries keep increasing restrictions against one another, we start calling it a trade war.

Who Actually Pays the Tariff?

This is where things get interesting. People sometimes assume that if the United States puts a tariff on Canadian products, Canada simply writes the U.S. government a cheque. That’s not how it works.

Imagine a Canadian company manufactures a product for $100 and sells it to an American importer. If the United States applies a 50% tariff, the cost of bringing that product into the United States can effectively increase dramatically. Someone has to absorb that additional cost.

It might be:

• The Canadian manufacturer, which lowers its price and accepts a smaller profit.
• The American importer or retailer, which accepts a smaller profit margin.
• The consumer, who pays a higher price.

Or, as often happens, the cost gets shared among all three.

Canada has now responded with its own tariffs on selected American products, meaning the same process can occur here at home.

As of September, Canada’s latest countermeasures cover approximately $27.6 billion of U.S. imports, with tariffs of 15%, 25% or 50% depending on the product. And we have real Canadian evidence showing what can happen next.

A Bank of Canada study of Canada’s 2025 counter-tariffs found that prices of affected products eventually rose about 6% more than comparable non-tariffed products. In other words, businesses absorbed some of the tariff, but consumers ultimately paid part of it too.

What Could This Mean in Everyday Life?

This is where the trade war stops being an economic story and becomes a household story. Suppose you’re planning to replace your refrigerator. Certain U.S.-made appliances are now subject to Canadian counter-tariffs. The retailer importing those appliances may eventually raise prices. Or perhaps you are renovating your house. Tariffs on steel, aluminum, lumber or other building materials can increase construction costs.

Perhaps you’re buying a car. Modern vehicles contain thousands of components, often crossing the Canada-U.S. border multiple times during production. Tariffs can increase manufacturing costs throughout that supply chain.

The same principle can eventually affect:

• Appliances
• Electronics
• Cars and auto parts
• Clothing
• Agricultural equipment
• Certain foods
• Furniture
• Building materials
• Manufactured products

Not everything suddenly becomes 50% more expensive. Businesses can absorb some costs, switch suppliers, change where they manufacture products, or source products from other countries.

But generally, when moving goods across borders becomes more expensive, somebody eventually pays part of that cost. And often, that somebody is the consumer.

Could This Increase Inflation?

Yes. Tariffs can increase the cost of imported goods. If businesses pass those higher costs to customers, consumer prices rise. That doesn’t necessarily mean we return to the inflation levels experienced several years ago. But it creates another source of inflationary pressure. This matters because inflation has already become more noticeable again in Canada. Headline inflation was 3.0% in August, although underlying inflation measures remained closer to 2%. Energy prices have driven much of the recent increase.

Now add tariffs.

The Bank of Canada has specifically warned that Canadian and U.S. trade actions could increase business costs and eventually feed into consumer prices. For retirees, that deserves attention.

What Happens to Canadian Companies?

This depends enormously on the company. Imagine a Canadian manufacturer that sells 70% of its products to American customers. Suddenly its products become considerably more expensive in the United States. American customers may:

• Buy less.
• Negotiate lower prices.
• Find an American supplier.
• Or source the product from another country.

The Canadian company then faces some difficult choices.

• It may accept lower profits.
• Delay expansion.
• Reduce investment.
• Freeze hiring.
• Cut costs.
• Or, in more serious situations, reduce its workforce.

That is how a tariff can eventually move from the border into the broader Canadian economy. The Bank of Canada says the latest U.S. tariffs directly affect a relatively limited portion of Canada’s total exports, but it has also warned that the broader uncertainty could cause companies to delay investment and hiring. And sometimes uncertainty can be almost as damaging as the tariff itself. A company considering building a $500-million factory in Canada may ask:

“Will we still have reliable access to the American market five years from now?”

If management doesn’t know the answer, it might postpone the investment. Multiply that decision across thousands of businesses, and economic growth can slow.

What Could Happen to the Canadian Economy?

In the short term, Canada may face competing forces. Some export-oriented industries could struggle. Business investment may slow. Certain consumer prices could rise. Economic confidence could weaken. But other industries may benefit.

Canadian companies may replace U.S. imports. Businesses may find new international customers. Governments may accelerate infrastructure projects. Canada may attract foreign investment into energy, mining, manufacturing, technology and other strategic industries.

And Canadian companies may become less dependent on a single export market. That’s why the long-term story could be very different from the short-term story.

Could There Actually Be a Long-Term Benefit for Canada?

Potentially. For generations, Canada’s greatest economic advantage has also created a vulnerability: We have one enormous customer next door. The United States.

When that relationship works well, it is extraordinarily beneficial. But the current trade dispute has reminded Canadian businesses and governments of the risks of depending too heavily on one market.

That is accelerating discussions around:

• New European and Asian trade relationships
• Canadian energy exports
• Critical minerals
• Mining
• Artificial intelligence
• Manufacturing
• Infrastructure
• Ports and transportation
• Domestic defence industries
• Interprovincial trade

The objective is not necessarily to replace the United States. That would be extraordinarily difficult. The opportunity is to become less dependent on it. If Canada successfully attracts investment and develops additional global markets, some of today’s disruption could eventually lead to a more diversified Canadian economy.

But that transition would take years… not months, and there is no guarantee that all industries or regions would benefit equally.

What Does a Trade War Mean for the Stock Market?

Here’s where investors need to be careful. “Bad for the economy” does not automatically mean “sell the stock market.” Markets look forward. Investors constantly try to estimate what corporate profits might look like six months, one year, or several years from now. That means markets may fall when unexpected tariffs are announced. Then they may recover once investors understand which companies are actually affected.

Different industries may also respond very differently. A Canadian manufacturer heavily dependent on U.S. customers could face challenges. A Canadian infrastructure company building domestic projects may benefit. A Canadian mining company supplying critical minerals may see new opportunities. Banks could be affected by slower economic growth. Energy producers could be influenced far more by global oil prices than tariffs. Technology companies may have completely different exposures.

That is why simply saying, “There’s a trade war, so Canadian stocks are bad” is far too simplistic.

What About Someone Living Off Their Investments in Retirement?

This is where the conversation matters most for Retirement IQ clients. Imagine you’re 70 years old. You no longer receive a paycheque. Instead, your retirement income comes from:

• CPP.
• OAS.
• RRIF withdrawals.
• Dividends.
• Interest.
• Pensions.
• And your investment portfolio.

Now imagine tariffs contribute to higher inflation.

• Your groceries cost more.
• Your new car costs more.
• Home repairs cost more.
• Travel costs more.

But you still need approximately the same monthly income from your portfolio. That creates something retirees should pay very close attention to:

Purchasing-power risk.

If you need $70,000 per year today and your living costs rise 3% annually, you will need roughly $94,000 per year 10 years from now to maintain approximately the same lifestyle.

That’s why retirement investing can’t be about avoiding losses alone. It also needs to address the risk that your money buys less over time.

Why “Just Put Everything in GICs” May Not Solve the Problem

Higher interest rates can make GICs and savings accounts attractive. And they can absolutely play an important role in retirement planning. But retirees potentially face two very different risks.

Market risk: your investments decline.

And:

Inflation risk: your investments don’t grow enough.

Avoiding one while ignoring the other can create a different problem. Someone retiring at 65 may need their portfolio to provide income into their 80s or 90s. That means part of the portfolio may need to continue growing.

What Should Retired Investors Be Thinking About?

The answer isn’t to predict whether Canada or the United States “wins” the trade war. It is to build a retirement strategy that doesn’t require you to know. That can mean maintaining sufficient liquidity for upcoming withdrawals, owning income-producing investments, maintaining growth exposure, diversifying outside Canada, avoiding excessive exposure to any single company or industry, and periodically rebalancing as markets change.

The objective isn’t: “What should I buy because of the trade war?” A better question is: “Would my retirement plan still work if this trade dispute lasts several years?”

That’s a much more useful question.

Think of Your Portfolio Like Canada’s Economy

There is an interesting parallel here. Canada is currently learning that depending too heavily on one customer creates risk. The same principle applies to investing. Depending too heavily on:

• One company.
• One sector.
• One country.
• One asset class.
• One source of retirement income.
• One economic outcome.

…creates vulnerability. Diversification doesn’t eliminate risk. It reduces your dependence on being right about one future.

Short Term vs. Long Term

In the Short Term

We could see:

• Higher prices on certain goods.
• Pressure on some Canadian exporters.
• Market volatility.
• Business uncertainty.
• Delayed investment and hiring.
• Pressure on certain industries and communities.
• Potential inflationary pressure.

Over the Longer Term

The picture becomes more complicated. Canada may increase trade with Europe and Asia. Companies may redesign supply chains. More products may be manufactured domestically. Investment may flow toward Canadian energy, infrastructure, mining, technology and manufacturing. Canada may become less economically dependent on the United States. Some industries may shrink while others may grow. The Canadian economy will adapt. Investors will watch how it adapts for years.

The Bigger Lesson

Trade wars create winners and losers. They create uncertainty, and they can be disruptive. But economies are not static; companies adapt, and consumers change what they buy. Supply chains move. New markets develop, and capital finds new opportunities. And investment portfolios need to evolve, too. For Canadian retirees, the goal shouldn’t be to predict every tariff announcement from Washington or every response from Ottawa. The goal is much simpler:

Build a retirement plan that can survive several different futures.

Because financial security doesn’t come from knowing exactly what happens next. It comes from being prepared when you don’t.

Krystian

If you’re unsure whether your retirement income and investment strategy are positioned for inflation, market volatility and a changing Canadian economy, speak with your financial professional and review your plan.

Disclaimer: This material is provided for general informational purposes only and should not be considered investment advice or a recommendation to buy or sell any security. The companies mentioned are examples of businesses we are monitoring within broader investment themes and may not be suitable for all investors. Investment decisions should be based on your individual objectives, risk tolerance, time horizon and financial circumstances. Past performance does not guarantee future results. Before making any investment decision, please speak with your financial professional.