With the U.S. and Canada imposing new tariffs on each other, TSX investors are bracing for potential market volatility. Some Canadian market sectors, especially those heavily tied to cross-border trade, could see short-term challenges. But remember, history has shown that trade disputes rarely have a lasting impact on long-term investors. This is because markets gradually adapt to the trade challenges, and businesses find new ways to handle tariffs, which helps well-diversified portfolios recover in the long run.
In this article, I’ll talk about the TSX sectors most affected by the trade war and explain why patient investors should focus on long-term growth rather than short-term uncertainty. I’ll also highlight a top safe stock you can consider right now that has the potential to perform well despite rising trade tensions.
U.S.-Canada trade war escalates
On February 1, U.S. president Donald Trump officially announced a 25% tariff on Canadian imports, targeting a wide range of goods, from industrial materials to consumer products. Energy exports from Canada face a slightly lower 10% tariff, but the impact still could be huge. The Trump administration justifies these tariffs by highlighting national security concerns.
However, the Canadian administration has strongly pushed back, arguing that these tariffs are unfair and politically motivated rather than based on actual trade violations. As a result, Canada has responded swiftly by announcing 25% tariffs on $155 billion worth of U.S. goods. This includes a broad range of American exports, such as vehicles, aluminum, steel, agricultural products, and even consumer staples like coffee and orange juice. As both governments dig in their heels, businesses that rely heavily on U.S.-Canada trade could struggle to adjust in the short term.
Tariffs could hurt these TSX sectors the most
One of the industries that could feel the trade war’s immediate pressure is the auto sector. With potential tariffs on U.S.-made vehicles and trucks, both manufacturers and auto parts suppliers could face big disruptions. Notably, many Canadian factories already depend on American-made components, and higher costs may ultimately be passed on to consumers.
Similarly, the metals and mining sector could also see the impact. The U.S. tariffs on Canadian steel and aluminum may disrupt exports, leading to price fluctuations and potential layoffs. However, we shouldn’t forget that these industries have weathered trade tensions before, but prolonged tariffs could weaken their competitive position in the North American market.
In addition, consumer goods companies could also get caught in the crossfire. Tariffs on everyday products like beer, spirits, and food imports from the U.S. could drive up costs for Canadian retailers as well as consumers. If the U.S.-Canada trade war continues, most grocery stores and restaurants that rely on American-sourced products may have to hike prices or seek alternative suppliers to protect their profit margins.
Trade tensions might not affect this safe TSX stock
While the trade tension might be unsettling for now, Foolish Investors might want to stay focused on a long-term approach. Some sectors will adapt more quickly than others, and certain stocks still look attractive to buy now despite the temporary trade turmoil. One such stock is Dollarama (TSX: DOL), the top Canadian discount retailer. The company offers budget-friendly essentials and seasonal products to consumers. Over the past decade, its stock has soared by more than 580%, proving its ability to thrive in various economic conditions.
Besides its solid financial growth trends, what really makes DOL stock attractive amid trade concerns is its expansion plan, as it aims for 2,200 stores by 2034. Even with trade disputes shaking up the stock market, Dollarama’s defensive business model and steady growth make it a reliable TSX stock to buy now and hold forever.
