Will Trump’s Trade Tweets Cause More TSX Index Mayhem?

Could Donald Trump’s trade talk cause damage to TSX Index funds like iShares S&P/TSX Capped Composite Index Fund (TSX:XIC)?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This past Tuesday, international markets tanked after U.S. president Donald Trump made a tweet saying that he would raise tariffs on $200 billion worth of Chinese goods from 10% to 25%. The tweet most severely impacted tech stocks like Apple, which depends on Chinese manufacturing. However, the impact of the tweets was felt far beyond the U.S. tech sector or the U.S. in general. Almost all international markets fell on the news, including the TSX, which slid 0.82%.

Although the TSX’s losses on Tuesday were minor compared to those seen in the U.S. and China, they were significant enough to cause some alarm. Additional U.S. tariffs on China could have spillover effects for all countries, and continued sabre rattling from Trump could have a chilling effect on Canadian exporters.

As of Wednesday, Trump appeared to back down on his statements, saying that he was “happy” with the tariffs already coming into U.S. coffers. However, the same tweet contained antagonistic language toward China, which raises the possibility of continued trade tension. It’s very likely that any further tension of this short would negatively impact the TSX Index. To see why that’s the case, we need to look at why the TSX got hit so hard on Tuesday.

Why the Canadian markets tanked

On the surface, it doesn’t look like U.S.-China tension has much to do with Canada. However, looks can be deceiving. Canada is massively dependent on its trade partner to the south, as 20% of its GDP comes from exports to the U.S.

This reality can easily be seen in the operations of Canadian businesses as well as in economic data. It’s hard to think of a publicly traded Canadian company outside of banking that doesn’t export to the U.S. If Canadian goods are hit with tariffs, then many Canadian stocks will suffer.

So, if you hold a TSX index fund like iShares S&P/TSX Capped Composite Index Fund (TSX:XIC), your holdings would very likely hit by Trump slapping tariffs on Canada. This index fund, which mirrors the S&P/TSX Composite Index, is highly weighted in energy, materials and bank stocks. Energy and materials companies basically depend on U.S. exports to survive, while bank stocks are increasingly growing their presence in the states as well. So, Trump’s China threats are relevant to the TSX to the extent they signal that Trump’s China tariff spree could spread to Canada.

Buffett called sell-off “rational”

In an interview on the subject, Warren Buffett said that Tuesday’s market selloff was “rational” and that Trump’s proposed actions would be “bad for the whole world.” This is significant because Buffett rarely views short-term market swings as significant. The fact that he’s calling this most recent one rational means he believes that the economy and, by extension, stock fundamentals, would suffer from Trump’s proposed actions. This suggests that continued Twitter sabre rattling from the president would not be good for the TSX Index — or any index for that matter.

Should you invest $1,000 in Vanguard Retirement Income Etf Portfolio right now?

Before you buy stock in Vanguard Retirement Income Etf Portfolio, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Vanguard Retirement Income Etf Portfolio wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Andrew Button has no position in any of the stocks mentioned. David Gardner owns shares of Apple. The Motley Fool owns shares of Apple and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

A worker overlooks an oil refinery plant.
Dividend Stocks

3 High-Yield Canadian Stocks I’d Consider for a $5,000 Investment

These three dividend stocks are excellent additions to your portfolio, given their healthy cash flows and high yields.

Read more »

chart reflected in eyeglass lenses
Investing

3 No-Brainer Canadian Stocks to Buy Under $50

Given their solid underlying business and healthy growth prospects, these three under-$50 stocks would be excellent buys right now.

Read more »

canadian energy oil
Energy Stocks

How I’d Position $7,000 in This Canadian Energy Stock for 2025 Growth Potential

Tourmaline, Canada's low-cost and largest natural gas producer, is benefiting from strong industry fundamentals.

Read more »

Oil industry worker works in oilfield
Stock Market

3 Undervalued Canadian Stocks I’d Buy and Hold for Decades

Investing in quality undervalued stocks such as Martinrea and Cascades should help you generate outsized gains in 2025 and beyond.

Read more »

nuclear power plant
Energy Stocks

1 Magnificent Canadian Stock Down 40% to Buy and Hold Forever

This energy stock may be down, but do not count it out if you're looking for long-term income.

Read more »

A plant grows from coins.
Energy Stocks

Where I’d Put $15,000 in Top Energy Stocks for Income and Appreciation

The recent pullback in energy stocks presents a compelling opportunity for long-term investors to generate capital gains and dividend income.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Use My TFSA to Invest in Canadian Value Stocks for Long-Term Wealth

TFSA investors can mitigate bearish trends by shifting to value stocks that can deliver long-term wealth.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA ‘Forever Holdings’: 4 Canadian Stocks for Sustained Tax-Free Growth

Add these four TSX dividend stocks to your self-directed TFSA portfolio to generate tax-free passive income for decades.

Read more »