Canada’s economy has been hit with a fresh round of uncertainty as former U.S. President Donald Trump revives his tough-on-trade rhetoric. As Trump returns to the White House in 2025, a new wave of tariffs could target auto manufacturers, making it a rocky road ahead for Canada’s car industry. While some stocks stand to take a hit, others could thrive in the shifting economic landscape. One company that might struggle under these policies is Magna International (TSX: MG), while Canadian National Railway (TSX: CNR) could be a surprising winner.
Source: Getty Images
Why not Magna
Magna International is one of Canada’s largest auto parts manufacturers, supplying key components to carmakers around the world. But with Trump vowing to impose tariffs on foreign-made vehicles and auto parts, Magna’s operations could face significant headwinds. Given that much of Canada’s auto industry relies on trade with the U.S., any restrictions could hurt Magna’s bottom line.
Higher tariffs would make Canadian-produced auto parts more expensive for American automakers, potentially forcing them to source more materials domestically. That shift would squeeze Magna’s profit margins and reduce demand for its products. Even if Magna attempts to offset the damage by ramping up production in the U.S., the transition won’t be seamless. And the Canadian stock could still face added costs.
Magna has seen its stock price struggle over the past year, partly due to supply chain issues and fluctuating demand in the auto sector. Now, with the risk of fresh tariffs looming, investors should be cautious. While Magna remains a solid company with strong long-term potential, the next few years could be turbulent. If Trump’s policies materialize, Magna’s revenue could take a hit, leading to weaker earnings and a tougher road ahead for shareholders.
Given these risks, it may be time to rethink holding Magna stock. While the company’s dividend is attractive, the Canadian stock is vulnerable to trade policy shifts. Investors looking for stability should consider reallocating funds to a sector that could benefit from shifting supply chains. Like railways.
CNR – A possible trade-war winner
CNR could be one of the few stocks to thrive if Trump reintroduces tariffs. While auto manufacturers could struggle with higher costs, railways will remain a crucial part of North America’s supply chain, adapting to new trade routes and shifting demand.
If tariffs force manufacturers to rethink supply chains, there’s a good chance more goods will move by rail, especially within North America. Railways provide an efficient and cost-effective way to transport goods, particularly as companies look for alternatives to pricier shipping routes. Canadian National’s extensive network across Canada and the U.S. positions it well to benefit from these trade shifts.
Unlike Magna, which is exposed to industry-specific risks, Canadian National Railway enjoys a more stable business model. The Canadian stock has a solid track record of profitability, strong cash flow, and a reliable dividend. Making it a safer bet for long-term investors.
Even in times of economic uncertainty, rail transport remains essential. Whether it’s raw materials, consumer goods, or even auto parts, companies still need to move their products. Canadian National benefits from a near-monopoly in certain transportation corridors, allowing it to maintain strong pricing power.
Bottom line
Trump’s tariff policies, if enacted, could disrupt Canada’s economy. But they don’t have to disrupt your portfolio. Magna International could face significant challenges as the auto sector gets squeezed by new trade barriers, making it a risky investment in the near term. Meanwhile, Canadian National Railway stands to gain from shifting supply chains, offering investors a more stable and potentially lucrative opportunity.
For those looking to adjust their portfolios ahead of potential trade turbulence, selling Magna and buying Canadian National could be a smart move. As always, staying ahead of policy changes and understanding their impact is key to making informed investment decisions.
