Trump’s trade war continues this week, with the President promising fresh new tariffs on aluminum and steel. The latest move comes after Trump signed executive orders imposing tariffs on Canada, Mexico and China. The Canadian and Mexican tariffs were cancelled/delayed at the last minute, while the tariff on China went into effect with one of its provisions on exports under $800 later repealed.
Canadians breathed a collective sigh of relief when Donald Trump agreed to delay tariffs on Canadian goods after a last-minute conversation with Justin Trudeau. However, the implementation of the tariff on China shows that Trump is not always bluffing when he makes tariff threats.
It is therefore possible that Trump’s pledged 25% tariff on Canada will come into effect at some point. It would be wise for Canadians to prepare for this eventuality. In this article, I explore three moves you can make to protect yourself from future Trump tariffs.
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Move #1: Hold more than one currency
One of the likely effects of Trump tariffs on Canada’s economy would be a depreciation of the Canadian dollar against the US dollar. Tariffs reduce demand for goods from the exporting country, and Canada ships 77% of its exports to the US. Since we export more to the US than they do to us, the net effect would likely be our dollar suffering from the loss of US demand.
The move to protect against CAD devaluation is to hold more than one currency. The US dollar is one you might want to hold, especially if you have travel to the US planned. Another currency you might want to hold is one that is not exposed to US/Canada trade, such as the Australian dollar.
Move #2: Invest in global stocks
A second move you can make to protect your wealth from Trump tariffs is to invest in global stocks. By “global” I mean neither American nor Canadian. Equities such as UK banks, Chinese tech stocks, and Japanese trading companies are not affected by Canada/US trade dynamics. One category just mentioned — Chinese tech stocks — is affected by US tariffs on China, but the current 10% tariff rate is not crippling to them.
The logic behind investing in global stocks goes far beyond shielding yourself from Trump tariffs. According to academic financial theory, the best portfolio is the most diversified one. If the academics are right about this, then having some non-North American stocks in your portfolio is a good idea, as they add a diversification benefit to your portfolio.
Move #3: Double down on your Canadian stocks
Last but not least, doubling down on your TSX stocks would likely be a wise way to hedge yourself against Trump tariffs. I don’t mean indiscriminately buying more of any Canadian stock you own; but rather, buying more of the ones that are tariff-safe. That includes many grocery stores, Real Estate Investment Trusts (REITs), and dollar stores.
Consider RioCan Real Estate Investment Trust (TSX: REI.UN), for example. It’s a Canadian REIT that operates exclusively in Canada. The REIT works exclusively with Canadian contractors. Many building materials it relies on when building new properties — such as steel and timber — can also be sourced in Canada. Put simply, REI.UN is about as domestic a company as you’ll find anywhere.
Now, RioCan’s tariff immunity does not in itself make the REIT a buy. If it is immune to tariffs while being a lousy company, it’s a lousy stock. However, this company trades at 12.3 times AFFO (i.e., cash earnings) and grew its earnings 54% this year. Overall, it has enough things going for it to merit further research. And of course, it cannot be hit with tariffs.
