Late last month, those not aligned with Donald Trump’s tariff policies (including most Canadians) got a dose of good luck when a U.S. appeals court struck down Trump’s reciprocal tariffs. Ruling that the President overstepped his authority in enacting the tariffs, the court seemed to do Canada a major favour. While Trump’s tariffs are currently in effect as the case makes its way to the Supreme Court of the United States (SCOTUS), a November ruling could kill the tariffs for good. If that were to happen, then most of Trump’s tariffs on Canada would stop being charged.
What happened
In August, a U.S. Federal Appeals court voted 7-4 that Trump’s use of emergency powers to enact tariffs was unconstitutional. As the Trump administration has moved to take the matter to SCOTUS, the tariffs remain in effect.
The power to enact tariffs is normally held by the U.S. Congress, not its President. However, in the 1970s, the Congress delegated some of its powers to the President, citing national security concerns. As a result, Presidents can now declare emergencies and unilaterally enact tariffs that way.
The question is, did President Trump use these emergency powers in a correct way?
When Congress gave the President emergency trade powers, it intended for those powers to be used only during national security emergencies. What Trump actually did was he declared the U.S.’s trade deficits with various countries as national security threats, and tariffed the countries accordingly. This stretching of the definition of “national security” could be seen as not in good faith. That’s a big part of what the SCOTUS will have to decide when it hears this matter in November.
Is Canada safe?
If the SCOTUS strikes down Trump’s tariffs then a lot of the economic pressure Canada currently faces from the U.S. will go away. On the other hand, if the SCOTUS upholds the tariffs, nothing changes. It’s a bit of a coin flip; thus, it’s wise to prepare your portfolio for the worst.
Where to invest
Due to the uncertainty of the fate of Trump’s tariffs, it’s wise to plan your investments on the assumption that the tariffs will remain. Unfortunately, that means that many Canadian exporters – particularly those reliant on the U.S. market –aren’t looking so good. On the other hand, many non-export Canadian companies are pretty much unaffected by the tariffs.
Consider Fortis Inc (TSX:FTS), for example. It’s a Canadian utility stock that has basically no export operations whatsoever. It does have U.S. operations, but those operations are run through subsidiaries incorporated in the United States. So, there is no Canada-U.S. exporting involved here.
Fortis is generally regarded as a very well run Canadian utility. Over the years, it has consistently increased its revenue, profit, and dividend. Its dividend growth streak of 51 years is among the longest of any TSX-listed company. Fortis is currently undertaking a large capital expenditure (CAPEX) program that will increase its rate base, powering more dividend hikes in the future. Overall, you could do much worse than to invest in Fortis.
The bottom line
The bottom line here is that nobody is 100% sure what’s going to happen with Trump’s tariffs. What is certain is that by investing in a diversified portfolio of quality Canadian stocks, you can survive them just fine.
