Earlier today, the U.S. and China made a joint statement in which they announced that they would be lowering tariffs on one another by 115%. The U.S. tariff rate on China will decline from 145% to 30%, while the Chinese tariff rate on the U.S. will go down from 125% to 10%. The biggest tariff move since Trump initiated his April 2nd duties has U.S., Chinese, and Canadian markets ablaze. As of this writing at 1:20 pm on Monday, the TSX was up 0.6% — less than the U.S. markets but nevertheless making gains.
You might wonder why Canadian markets are reacting to the U.S.-China deal at all. After all, nothing directly impacting Canada-U.S. trade was announced today. However, many Canadian companies do indirectly benefit from the pause in trade hostilities between the U.S. and China. First, some Chinese products come into Canada via the U.S., meaning that such products are hit by U.S.-China tariffs before crossing into Canada (in some cases, these products are tariffed again at the border). Second, the thawing of relations between the U.S. and China may signal an overall more dovish attitude from Trump, which would bode well for Canada.
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Stocks making big moves today
Regardless of what investors are thinking, some Canadian stocks are making big moves today.
Air Canada (TSX: AC) was up 5.5% for the day as of this writing. The stock was a major casualty of Trump tariffs, as said tariffs decreased Canadian travel to the U.S. (some reports claimed Canada-U.S. air travel hours declined as much as 70%). If Air Canada’s move today is related to trade news, it is most likely because investors are speculating that Trump’s dovishness on China portends dovishness on other countries, including Canada. Air Canada was never massively impacted by Trump’s tariffs: it imports most of its jet fuel and airplanes from Europe. Air Canada may have some Boeing orders in the pipeline, but airplanes were not included in Canada’s retaliatory tariff package on the United States.
Brookfield Corp (TSX: BN) is another Canadian stock up big today. As of this writing, it was up 3.65% for the day. Brookfield has been impacted by Trump tariffs in several ways. Most obviously, energy supplied by its renewable energy subsidiary is now subject to a 10% energy tariff. Less obviously, the company’s massive collection of U.S. and Asian investments likely faced higher costs for some supplies, such as office furniture and metals. Brookfield’s bounce on today’s announcement appears pretty rational and grounded in sound economic thinking.
The bottom line
Today’s U.S.-China tariff announcement was good news for investors everywhere. Many investors, including Canadian investors, have large percentages of their money invested in U.S. stocks. Those investors are breathing a sigh of relief today. Canadian companies are also in a better place right now because of the deal. Although Canada was not a direct party to the deal, its companies paid a price for China-U.S. hostilities, albeit an indirect one. The fact that the U.S. struck a deal with what it calls its “number one adversary” also bodes well for future U.S.-Canada trade talks.
