The U.S.-Canada tariff war just escalated when Prime Minister Mark Carney implemented its “dollar-for-dollar” retaliatory tariff. The headlines read that up to 50% retaliatory tariffs will be imposed on $27.6 billion worth of U.S. imports, which is around 8% of the $333.6 billion of total U.S. imports in 2025.
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Canada’s retaliatory tariffs just kicked in
The goods facing retaliatory tariffs include dairy, agricultural equipment, paper, household appliances, and electronics. They form a small portion of the U.S.-Canada trade. The biggest trade commodity — oil and gas — has been left out of tariff escalations, and so have artificial intelligence (AI) chips.
Bombardier (TSX: BBD.B) came into focus as U.S. president Donald Trump threatened to ban Bombardier planes unless it manufactures them in America. The business jet maker surely relies on the United States for 50% of its revenue, but the threats are unlikely to impact Bombardier much. Technically, most of the processes involved in making and servicing business jets are divided between America and Canada.
All goods facing retaliatory tariffs have a very small representation on the TSX Composite Index. Some stocks that took the direct hit include Canadian National Railway, as rail locomotives are among the goods facing higher tariffs. While the direct impact is relatively small, it could delay businesses’ expansion and capital expenditure plans. Canadians and Americans will feel the heat of the tariff war through rising inflation and possibly another round of job cuts as tariffs slow capital investments.
What do Canada’s retaliatory tariffs mean for your portfolio?
Rarely will you find a Canadian portfolio having significant exposure to railway, paper, or dairy stocks. High-volume sectors like energy, metals and minerals, banking, and tech make up a significant share of most Canadians’ portfolios.
Long-term investors need not worry about the retaliatory tariffs, as the market has already been adjusting to tariff wars. Canada has been diversifying its exports beyond America. Moreover, the weak representation of affected goods and services on the TSX means the stock market may not react fervently. So, instead of reacting to short-term headwinds, focus on long-term growth.
Defensive stocks that hedge against inflation
One good thing about short-term volatility is the opportunity to buy the dip. Stocks such as Loblaw (TSX: L) and Lundin Gold (TSX: LUG) could see a rebound. They are good defensive stocks to hedge against the upcoming inflation from tariffs.
Loblaw, for instance, is a discount retailer that benefited from the “Buy Canadian” strategy. When U.S. imports become expensive in 2025, it filled its shelves with Canadian goods to help Canadians afford their daily essentials. Loblaw’s 2025 rally, which began at the start of March 2025 after tariffs hit Canada, is an example of how the retailer benefits from tariffs.
Like Loblaw, Canadian Tire (TSX: CTC.A) will also benefit from buying Canadian goods, as retaliatory tariffs include a 50% tariff on sports equipment and a 25% tariff on lawn mowers and home appliances. Moreover, inflationary pressure could drive demand for automotive maintenance goods as people might delay buying new cars. The initial response of most stocks to tariffs is a dip, but the tariffs will help retailers boost their sales and drive the stock up by 20-30% in the next 12-15 months.
Beyond consumers, gold will be an ultimate hedge, as a rise in gold prices will offset dips in other stocks. The geopolitical tensions and rising currency fluctuations make a good investment case for gold stocks. Lundin Gold is among the best stocks to own as it has a low all-in sustaining cost and zero debt. Note that gold miners do not increase production but benefit from reduced mining costs and rising gold prices. While other gold miners have volumes, their costs are high, which reduces the pure-play gold investment benefit.
Investor takeaway
The prolonged tariff war is not surprising. In fact, it should be taken as an opportunity to invest in the upcoming trend of trade diversification and Canadian infrastructure. TC Energy and Bird Construction are among those preparing to expand into non-U.S. export markets.
