As Prime Minister Mark Carney bluntly stated in his recent election victory speech, Canada’s “old relationship with the United States, a relationship based on steadily increasing integration, is over.” This stark assessment comes as tariff tensions escalate between Canada and its largest trading partner — a nation that accounts for approximately three-quarters of its exports and nearly half its imports. However, Canadian investors are already making strategic moves. They bought U.S. stocks at record levels in February, and there’s more they could do during trade war-induced stock market volatility.
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Trump Tariffs: The new reality
President Trump’s aggressive tariff strategy has sent shockwaves through global supply chains. Canadian businesses may face significantly higher costs for U.S. market access for years to come, while Prime Minister Carney’s policies may target helping them remain competitive domestically against American imports.
While some Canadian stocks may face challenges in the near term, history teaches us a valuable lesson: even the most disruptive trade wars eventually reach equilibrium as economies adapt.
Investment strategies during a trade war
The current trade landscape demands a recalibration of investment approaches. Here’s how to position your portfolio as Trump’s tariffs reshape North American commerce:
Diversify across domestic sectors. Companies providing essential services — utilities, consumer staples, and grocers — tend to demonstrate resilience during economic turbulence. Their steady demand profiles can offer stability when markets wobble under trade pressures. Canadian companies with minimal U.S. exposure deserve particular attention during this trade war.
Consider U.S. stocks despite the tension. This might seem counterintuitive during a trade war, but there’s sound logic behind it. If Trump’s tariffs succeed in protecting American companies from global competition as intended, these businesses may capture increased domestic market share. Canadian investors purchased U.S. stocks at record levels during the first quarter for precisely this reason, positioning to benefit regardless of which side “wins” the trade conflict.
Look beyond North America. The global economy continues to evolve, with new trade relationships forming as a direct response to Trump’s tariff policies. Markets in Europe, Asia, and emerging economies may offer growth opportunities uncorrelated with North American trade tensions, potentially benefiting from trade diversion effects as global supply chains reorganize.
Add gold stocks exposure as a trade war hedge. Gold reached all-time highs in April 2025 as U.S.-China trade conflicts intensified alongside Canada-U.S. tensions. As a traditional hedge against geopolitical uncertainty, gold often performs well when market uncertainty increases.
Maintain fixed-income holdings with a defensive tilt. Bonds typically offer a lower correlation to stocks, potentially dampening overall portfolio volatility during market disruptions caused by unpredictable tariff announcements. Canadian government bonds may provide particular stability if the Bank of Canada adjusts monetary policy to counter trade war impacts.
Investing during a tariff war: The one-ETF solution
Exchange-traded funds (ETFs) may provide simplicity and immediate diversification during these volatile trade tensions. iShares Core Balanced ETF Portfolio (TSX:XBAL) offers an elegant solution.
This single ETF investment provides the following:
- A professionally managed asset allocation split into 60% stocks and 40% bonds.
- Exposure to 21,327 underlying holdings across global markets, providing natural diversification and insulation from Trump tariff impacts.
- A low management expense ratio of just 0.2% ($2 annually per $1,000 invested).
- A strong track record with 6% compound annual returns over the past 10 years, demonstrating resilience through a recession and previous trade disputes.
The ETF’s holdings include Canadian and U.S. stocks, international developed markets, emerging markets, and various bond categories. With 46.6% exposure to Canadian assets, 32.6% to U.S. assets, and the remainder internationally diversified, this ETF offers geographic balance in one convenient package — crucial diversification during an era of trade instability.
The long-term view on Trump’s trade war
Trade wars create immediate disruption, but markets will inevitably adapt. New trade routes will emerge, supply chains will evolve to circumvent costly import taxes, and consumers are already adjusting preferences.
Investors who suffer the most during trade wars are those who panic and exit markets entirely, often missing the eventual recovery and adaptation. It’s advisable to remain invested through market cycles.
As Canada navigates tariffs, diversification remains your most powerful tool. Whether through a comprehensive ETF like XBAL or your own carefully constructed portfolio, spreading risk across asset classes and geographies provides vital protection against tariff-induced market volatility.
Patient investors who maintain discipline through market turmoil position themselves to benefit when economic winds shift direction — as they inevitably will.
