U.S. Floats Canada Exemption on Tariffs: Good News for Stocks?

Canada and companies like Russel Metals Inc. (TSX:RUS) are waiting with bated breath to see how tariffs will shake out late this week.

| More on:

The White House delivered yet another curve ball on March 7, as Press secretary Sarah Huckabee Sanders said that there were potential “carve outs” for Canada, Mexico, and perhaps other countries with regards to upcoming tariffs. The Trump administration is currently drafting tariffs on steel and aluminum that are expected to be unveiled at some point this week. Canada has made a strong push to be exempt, and if this news is any indication, it appears to have worked.

U.S. Indexes experienced a shaky March 7 after it was reported that chief economic advisor Gary Cohn planned to resign from his post. Cohn is a former executive at Goldman Sachs Group Inc. and was one of the architects of the U.S. Tax Cuts and Jobs Act that was enacted in December 2017. Cohn developed a reputation as one of the staunchest free trade proponents in the Trump administration and reportedly clashed with President Trump over the proposed tariffs before announcing his exit.

The U.S. political environment has played an increasingly active part in determining the ebbs and flows of not just its own stock market indexes, but the global landscape. The prospect of a trade war has some experts and analysts worried about the prospect of global economic conflagration — the likes of which has not been seen since the pre-WWII period. A breakdown in international trade could lead to the re-emergence of rival blocs.

The emergence of a North American rival bloc to a China-led East Asia or a German-led Europe is enough to strike fear in the hearts of investors.

Russel Metals Inc. (TSX:RUS) is a Mississauga-based metals distribution and processing company. Its stock has dropped 2.6% in 2018 as of close on March 7. However, the company responded positively to the announcement of the proposed tariffs.

Russel Metals chief financial officer Marion Britton said that tariffs would push steel prices higher, which would be good news going forward. Currently, the company derives about a third of its revenues from the United States. Keep in mind the dividend payout of $0.38 per share, representing a 5.3% dividend yield, and Russel Metals could be a sneaky pick up before tariffs are announced.

Stelco Holdings Inc. (TSX:STLC) and Tree Island Steel Ltd. (TSX:TSL) have both experienced volatility over the past two weeks. Stelco rose 3.8% on March 7, as news of the possible exemptions pushed shares up in late afternoon trading. Hamilton, Ontario, which Stelco calls home, lays claim to roughly 40,000 jobs that are directly tied to its steel industry. Tree Island Steel, a Vancouver-based steel company, has seen its stock plummet 16.1% in 2018 thus far.

How should investors play this?

When the tariffs were first announced, an exemption for Canada seemed likely, as the Department of Commerce had left the decision open in late February. The Trump administration has made a habit of proposing a policy perceived as radical, only to walk it back when it is fleshed out. The U.S. appears to be signaling that Canada may indeed find itself within the U.S. orbit when the tariffs are initiated.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

grow money, wealth build
Tech Stocks

Open Text Stock Could Double Your Money

While paying you an increasing dividend, Open Text stock can potentially double your money in three years, according to management…

Read more »

Growing plant shoots on coins
Tech Stocks

2 Top Growth Stocks That Are Screaming Buys Right Now

Here are two top Canadian growth stocks you can buy on the TSX today to expect some eye-popping returns in…

Read more »

woman analyze data

3 TSX Stocks to Buy Today and Hold for the Next 5 Years

These TSX stocks have a proven track record of delivering solid growth and posses multiple catalysts to make you a…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 TSX Stocks to Buy for Less Than $20 (That You’d Actually Want to Own)

Cheap TSX stocks such as Enerflex are trading at massive discounts to consensus price target estimates in September 2023.

Read more »

Silhouette of bull in front of setting sun
Dividend Stocks

3 Undervalued Canadian Stocks Set for a Bull Run

Three Canadian stocks trading below their intrinsic values are well positioned for a breakout, if a not a bull run.

Read more »

Growth from coins
Stocks for Beginners

This Growth Stock Is Bound for Greatness With Lifelong Income

GFL (TSX:GFL) stock has already made an impact on the market, but there could be even more coming its way.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

Pensioners: 2 Cheap TSX Dividend Stocks to Buy Today for TFSA Passive Income

Hold cheap dividend stocks in a TFSA such as Canadian Western Bank and earn a steady stream of passive income.

Read more »

analyze data
Dividend Stocks

Telus Stock: Keep Your Eye on the Prize

Telus (TSX:T) stock is one of the highest-yielding telcos in Canada.

Read more »