Canada says it’s a trade war, while the United States calls it a drug war. No matter what you name the actions, Americans and Canadians will feel the impact as prices rise, demand falls, and jobs take a hit. Tariffs discourage trade and protect domestic companies by giving them a cost advantage. Although the United States has paused tariffs on Canada for 30 days, the risk of a trade war looms.
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What does a trade war mean to an average Canadian?
Taking an example of a tariff, you can buy a made-in-America beer and a made-in-Canada beer, with a small price difference. That puts price as a secondary factor in your buying decision. A 25% tariff on American beer will increase the cost by 25%, widening the price gap. And a push towards “Buy Canadian” will further reduce demand for American beer.
Two TSX stocks to buy in the looming trade war
Corby Spirit and Wine stock
Consumers have a reason to opt for a more cost-effective alternative, giving domestic distillers an advantage. Corby Spirit and Wine (TSX:CSW.A) stock surged 2.5% on February 3 after the tariff was announced. Even a pause in tariffs creates a buying opportunity for the domestic distillery. Corby Spirit and Wine stock has been in a downturn since April 2022 due to falling earnings per share (EPS) and dividends. The company has been looking to revive its earnings with the acquisition of ABG on July 4, 2023, and Nude on May 13, 2024. ABG delivered strong revenue and helped Corby grow its revenue and profits in FY24.
The January to March quarter is seasonally weak for alcohol consumption after the end of holiday season sales. However, a looming trade war could give Corby the push in the second half of the year as competition from American brands reduces. Also, Corby has been paying dividends, but the dividend per share fluctuated as rising interest expenses and weak revenue from other brands lowered cash flow.
Corby may not be the best investing option for the long term, but it is an opportunistic buy in 2025 as it could rally amid uncertainty around American alcohol.
Descartes Systems
The looming trade war could create demand for Descartes Systems’ (TSX:DSG) supply chain solutions. The company offers global trade intelligence solutions to help manufacturers, distributors, and transport and logistics companies remain export-compliant. It also offers customs and regulatory compliance solutions such as product classification and duty calculations. A trade war means constant updates in tariffs and detailed customs checks.
Since Descartes caters largely to North American clients, a trade war in its territory means more demand for its solutions. A slowdown in trade activities could slow Descartes’ business in the short term, but a recovery could significantly boost trade as companies adapt to new trade policies. You could consider buying this stock even if it falls in the short term.
Two TSX stocks to avoid in the looming trade war
While there are a few stocks to buy, there are some stocks or rather sectors you might want to avoid in the looming trade war, irrespective of the company’s fundamentals.
Cannabis stocks such as Tilray and Aurora Cannabis may not be worth buying irrespective of their dips. These stocks could remain volatile throughout the year.
Apart from cannabis, automotive could be a sector you might want to avoid this year as tariffs could pose a hindrance on car assembly. A car is assembled at the place of sale, but the components are imported from different places. An automotive component crosses the Canadian, U.S., and Mexico border multiple times to finally arrive inside the car. A 25% tariff could make this whole process inefficient.
In a consumer market already struggling with high interest rates and inflation, an increase in oil prices (10% tariff on Canadian oil) and car prices might delay demand for new cars. Magna International and BlackBerry rely heavily on automotive sales. They could see more steep falls in the coming months depending on the developments around the trade war.
