By Gordon Pape, Editor and Publisher
The trade war is on. It’s just not clear from one day to the next which products are affected and at what rate.
President Trump confirmed the implementation of a 25% tariff on all imports from Canada and Mexico on Monday afternoon. The stock markets immediately plunged and continued to slide on Tuesday, the day the new rules came into force.
Then, on Wednesday, the President announced a pause in tariffs on the auto sector. The markets staged a recovery. On Thursday, Mr. Trump said that most Canadian and Mexican tariffs would be delayed until April 2 and combined with Washington’s new reciprocal tariff plan. The markets rallied briefly, then sank again.
On Friday, the President announced new tariffs on Canadian dairy and lumber. They might take effect maybe immediately, or maybe not. Stocks rallied, but not with much enthusiasm.
By week’s end, the whole tariff picture was in a state of total confusion and investors were struggling to make sense of it all.
Good luck with that. This is the most botched roll-out of a major economic plan that we’ve seen in years, if ever. No one has a clue, apparently including Mr. Trump, what tomorrow will bring or where the end game is heading.
The question everyone is asking is: How long will this go on?
The President gave the impression he is in for the long haul during his Tuesday night address to Congress. Yes, there will be “disturbances” along the way, he acknowledged. But his message to Americans was to stick it out. The end result will be a new “golden age”, as trillions of investment dollars pour in, creating millions of new jobs.
His message seemed clear. But by the next day the plan was already changing. The clear impression is that tariff policy is being made on the fly, with no in-depth analysis of its impact on the real world. That’s a hell of a way to disrupt the entire global trading system.
Meanwhile, industry leaders in both Canada and the US were trying to figure out the precise implications of the tariffs, to which products they apply, and whether we should be preparing for a temporary conflict or years-long trench warfare.
The stock markets suggested investors believe the war won’t end soon. The TSX, which until Monday appeared to be blithely ignoring the tariff threat, turned sharply lower after the President confirmed the 25% across the board tariff would take effect at 12.01 a.m. Tuesday. The index lost 392 points in the space of a few hours on Monday afternoon and was down another 430 points on Tuesday.
The carnage was pretty much across the board. Even financials were hit. They are not directly exposed to tariffs, but their business would suffer from the recession that many economists believe is coming if the tariffs remain in place for long.
All the major US indices were also steeply lower.
At the close on Friday, the S&P/TSX Composite had lost 2.5% for the week. All the US indexes were also down, with Nasdaq in correction territory (down more than 10% from its high).
At times like this, it’s important to remember that there’s never a crisis without opportunity.
During the Great Financial Recession of 2007-2009, banking stocks became ridiculously cheap as investors panicked after seeing the likes of Bear Stearns and Lehman Brothers go down. At one stage, Bank of Montreal shares were offering an 11% yield as investors anticipated a dividend cut. It never happened and the stock eventually rebounded.
The same thing will probably happen this time. Some first-rate companies with little or no direct exposure to tariffs will see big declines in their share prices. I can’t predict when they will hit bottom and start to rally, because the length and severity of Trump’s folly isn’t yet clear. But this phase will eventually pass and when it does there will be rich rewards for investors. For now, my suggestion is to look for quality companies that have little or no direct exposure to tariffs but whose price has recently dropped.