As Canadians, we’ve all experienced the ripple effects of U.S. policies, from trade deals to tariff wars. United States president Donald Trump’s tariff policies have historically disrupted trade between Canada and the United States. Now, as the threat of such tariffs looms again, Canadian businesses could face new challenges. While some companies might adjust, others could see costs rise, profits squeezed, and stock prices affected. In this context, stocks like Magna International (TSX:MG), Air Canada (TSX:AC), and Dollarama (TSX:DOL) may face particular risks if tariffs come back into play.
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The stocks
Magna International, one of Canada’s largest auto parts suppliers, could be especially vulnerable. With a strong customer base in the U.S., any tariffs on imports and exports between the two countries could increase costs for Magna. In the most recent quarter, Magna reported revenue of $42.84 billion, showing a slight 1.7% growth year over year. However, the company’s earnings saw a troubling 25.1% drop in quarterly earnings growth. This could be exacerbated by higher tariffs on automotive parts and components.
Air Canada, which depends on the U.S. for a significant portion of its business, could also feel the strain of Trump tariffs. In its latest earnings report, the airline posted revenue of $22.25 billion, marking a 4.4% increase. However, with a large portion of its operations tied to the U.S., increased tariffs on aircraft parts or fuel could significantly raise its costs. Although Air Canada’s quarterly revenue has been rising, the airline’s operating margin has remained down 3.92%, signalling that it’s still recovering from past challenges.
Dollarama, known for offering low-cost goods to Canadians, could also be affected by Trump’s tariff policies. While Dollarama’s focus is on providing affordable products, many of its goods are sourced from the U.S. and overseas. With tariffs potentially making these imports more expensive, Dollarama could face increased costs for its products, forcing the company to either absorb those costs or raise prices. In its most recent earnings report, Dollarama reported $6.17 billion in revenue, with a 5.7% increase year over year. Despite this, the risk of higher costs from tariffs may impact its ability to maintain its low-price strategy, especially for price-sensitive consumers.
Not all is lost
Though these companies may face hurdles if Trump tariffs are reintroduced, the stocks also have strengths that could help them navigate the storm. Magna, despite recent challenges, is a leader in the automotive industry and may be able to adjust its supply chain or pricing strategy to offset the impact of tariffs. Air Canada, recovering from pandemic-related losses, could benefit from a rebound in travel. However, tariff-driven increases in costs could hold it back. Dollarama, which has demonstrated resilience during tough economic times, could still thrive, especially by focusing on expanding its product offerings or finding efficiencies to maintain its low price point.
However, the outlook for these stocks is not without uncertainty. Magna may see prolonged pressure on its margins if tariffs disrupt the automotive supply chain. In contrast, Air Canada’s recovery could stall if higher operational costs harm its bottom line. Dollarama, while well-positioned in the retail sector, may face challenges as its low-cost model becomes harder to maintain in the face of rising tariffs.
Looking ahead, it will be essential to monitor how these companies adapt if tariffs return. Magna may diversify its supplier base or increase prices to maintain margins. Meanwhile, Air Canada could focus on reducing costs elsewhere or ramping up services to offset higher expenses. Dollarama may turn to its vast product selection and operational efficiencies to mitigate rising costs and retain customers.
Foolish takeaway
Tariffs might hurt in the short term, but these companies have strong fundamentals that could help them bounce back in the long run. In the face of potential tariff disruptions, investors will need to weigh the risks and rewards. For Canadians, the reintroduction of tariffs under Trump’s administration could serve as a reminder of the intricate relationship between our economies. While some businesses will struggle to adapt, others could find new ways to thrive, making now the perfect time to reassess your portfolio and consider how these companies might fare in a potentially more protectionist trade environment.
