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 Ishares Core S&p/tsx Capped Composite Index Etf right now?

Before you buy stock in Ishares Core S&p/tsx Capped Composite Index Etf, 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 Ishares Core S&p/tsx Capped Composite Index Etf 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

open vault at bank
Bank Stocks

3 Canadian Bank Stocks to Shield Against Market Downturns

Canadian bank stocks are some of the best options on the market, and these three are probably the top ones.

Read more »

worry concern
Stocks for Beginners

Got $2,000? Buy These 2 Canadian Stocks as Trump Tariffs Rock the Market

There are two Canadian stocks that have continued to do well even amidst this turmoil, so let's take a look.

Read more »

calculate and analyze stock
Bank Stocks

1 Canadian Stock Down 7% to Buy and Hold for a Long Haul

Now is the time to take advantage of this top-notch Canadian stock, buying it while it's still down.

Read more »

ways to boost income
Tech Stocks

How I’d Invest $11,500 in Canadian Fintech Stocks to Revolutionize My Finances

Propel Holdings stock's recent dip could be a trading opportunity for long-term financial gains. Here's why the fintech stock is…

Read more »

Confused person shrugging
Dividend Stocks

Where to Invest $2,500 in the TSX Today

These TSX stocks offer attractive dividends and a shot at decent upside on a rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,956.66 in Annual Passive Income

Dividends stocks can make a huge difference, even if shares don't move an inch. And these might be the best.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Got $5,000? 5 Income Stocks to Buy and Hold Forever

These income stocks have a solid dividend-payout history that can help you earn stress-free passive income.

Read more »

dividends grow over time
Stocks for Beginners

The Top Canadian Stocks to Buy Right Away With $4,000

If you only have $4,000 to invest, then these Canadian stocks are some of the best options out there.

Read more »