This morning, the U.S. Supreme Court ruled 6-3 that Donald Trump’s 2025 tariff increases were illegal. The ruling stated that Trump’s invocation of the International Emergency Economic Powers Act to justify tariff increases without congressional approval overstepped the President’s authority. Markets responded well to the news, with the S&P 500 up 0.4% for the day at the time of this writing.
Trading in Canadian markets was surprisingly muted as news of the ruling swept the markets. The TSX was up 0.11% for the day as of 10:45 AM, moving less than the S&P 500 at the same time.
The lukewarm trading in the TSX was surprising given that many sectors of Canada’s economy had been adversely affected by Trump’s tariffs. Canadians reacted with indignation to Trump’s tariff hikes when they were announced, responding with boycotts of American goods. However, there are rational explanations for why markets didn’t move that much following the Supreme Court’s decision, as well as reasons for Canadian investors to remain cautious despite today’s good news.
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Many Canadian sectors are not affected by tariffs
Although Trump’s 2025 tariff hikes infuriated many Canadians, their actual economic impact was limited. Canada’s real GDP is thought to have increased between 1.2% and 1.4% in 2025 (numbers are still being finalized), meaning that the tariffs seemingly didn’t prevent the economy from growing. Additionally, Trump remained surprisingly faithful to the 2018 Canada-U.S.-Mexico Free Trade Agreement (CUSMA) when enacting his tariff hikes, leaving the new tariffs concentrated on a few sectors. Canadians employed in auto manufacturing, steel and lumber did lose jobs, but outside of those sectors, it was largely business as usual.
Indeed, it was actually a banner year for the S&P/TSX Capped Composite Index last year! For the year, the composite rose 27%, far outperforming the U.S. markets in the same period. The year was a good one for banking, energy and utilities — three sectors that were left mostly unaffected by Trump’s tariffs, and which make up an outsized percentage of the TSX’s market cap. The strong performances in tariff-immune sectors lifted the overall market to impressive heights.
Banking: A star performer in 2025
One example of a large, tariff-immune Canadian sector is banking. Canadian banks do business in Canada as well as the United States. When they operate in the U.S., they physically set up shop there rather than sending exports over the border. So, apart from indirect impacts caused by unemployment — impacts that appear to have been minimal — the banking sector was not hit especially hard last year.
A good example to illustrate the above point is Royal Bank of Canada (TSX: RY). Royal Bank stock performed quite well in 2025, rising 35% and delivering a 39% total return. RY’s strong stock price appreciation was pretty well supported by the underlying business’s performance. In 2025, Royal Bank of Canada’s revenue, earnings and book value grew at the following rates:
- Revenue: 15%
- Earnings: 25%
- Book value: 7.9%
At the same time, the bank was ultra-profitable, with a 32.7% net profit margin and a 16.2% return on equity.
2025 was a good year for Royal Bank of Canada, which paradoxically means that today’s news might not be much of a cause for Canadian investors to celebrate. Trump’s tariffs definitely cost some Canadians their jobs, and most likely shaved a fraction of a percentage point off of GDP. However, they mostly left the manufacturing-light TSX Index unscathed. It would be silly, then, to expect a large stock market reaction to the scrapping of Trump’s tariffs. For my money, the TSX is still a buy. But not much more a buy than it was yesterday.
