The Canada-U.S. Trade War Drags On: 1 Stock I'd Buy and 1 I'd Avoid

The Canada-U.S. Trade War Drags On: 1 Stock I’d Buy and 1 I’d Avoid

Delve into the trade war that escalated after the USMCA expiration, impacting tariffs and trade dynamics between Canada and the US.

Puja Tayal

Author Bio

Puja Tayal grew up in a small-business family where dinner conversations often centred on working capital and savings. Her early experiences with investing, particularly during the 2008 financial crisis, shaped her approach to understanding markets and evaluating investment opportunities. She began her career at a mutual fund company before moving into investor education and financial writing for asset and wealth management firms. Before joining The Motley Fool, Puja wrote for Market Realist, where she extensively covered the semiconductor industry. Her published work has also appeared in The Indian Express. Puja believes every stock has a story that can help investors understand its potential returns. She combines business analysis with different investing approaches to help investors make informed decisions and align their portfolios with their long-term financial goals. Outside of finance, Puja enjoys long drives, catching up with friends, watching superhero and science-fiction movies, and managing her family portfolio. She also has a keen interest in artificial intelligence and its potential to reshape the world.

Education

Bachelor's degree in Accounting and Finance, University of Mumbai (2007)
CFA Level I

Areas of Expertise

Qualitative company analysis, management strategy, risk assessment, long-term investing, portfolio diversification and rebalancing, dividend reinvestment, cyclical growth opportunities, compounding strategies, growth stocks, and dividend stocks.

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"Risk comes from not knowing what you're doing." — Warren Buffett

Published October 27, 4:50 pm EDT

For years, the United States has been the biggest export market for most Canadian goods. However, a tariff war broke out in February 2025, when the US President Donald Trump imposed 25% tariffs. Since then, on-and-off tariffs between Canada and the United States continue to drag on the trade war. While tariffs weaken the overall market by restricting free trade, they make risks and opportunities reasonably predictable through tariff advantages or disadvantages.

Warning sign with the text "Trade war" in front of container ship — Source: Getty Images

The Canada-U.S. trade war drags on

The tariff war escalated after the non-renewal of the United States-Mexico-Canada Agreement (USMCA) on July 1, 2026, and 50% retaliatory tariffs coming into effect on January 1, 2027. In between escalations, the US Supreme Court ruled Trump tariffs invalid in February 2026 and ordered the government to refund them, as per a Reuters article. Recently, Trump eased tariffs on a few Canadian goods ahead of the November 3 elections, as per a CNBC article.

One stock to avoid as the Canada-U.S. trade war drags on

In the current scenario, auto stocks are at a disadvantage as auto parts and cars will be subject to a 50% tariff starting January 1, 2027. They currently enjoy relief from the US Supreme Court ruling.

At the center is Canadian auto parts maker Magna International (TSX: MG). In 2025, higher tariffs increased its cost of goods sold, reducing its net income and earnings per share (EPS). Things stabilized in 2026 after Supreme Court relief, and that was visible in the second quarter 2026 numbers. Net income and revenue jumped significantly. The company used this opportunity to accelerate share buybacks and significantly reduce its outstanding share count by 3% to 273.2 million shares in the second quarter of 2026.

Magna fundamentals (millions)	2024	2025	YoY Growth	Q2 2025	Q2 2026	YoY Growth
Revenue	$42,836	$42,010	-2%	$10,631	$10,980	3%
Net Income	$1,009	$829	-18%	$379	$469	24%
Number of outstanding shares	286.8	281.7	-2%	281.7	273.2	-3%
EPS	$3.52	$2.93	-17%	$1.44	$1.86	29%

Magna stock dipped almost 11% since August 21, 2026, when Trump announced a 50% tariff. The company is set to report its third-quarter earnings on October 30, 2026. Here, Magna’s management might shed light on the impact of 50% tariffs on its longer-term guidance. While Magna may reach its 2026 guidance, tariffs could significantly weaken its 2027 earnings.

It is better to avoid Magna stock amidst tariff volatility, as tariffs hit where it hurts the most – EPS.

One stock to buy as Canada-U.S. trade war drags on

While Magna is on the losing end of the trade war, Canadian Natural Resources (TSX: CNQ) is on the winning end. Oil and gas are the largest Canadian exports to the United States. The United States is dependent on Canada for a major portion of its energy needs. Thus, it did not increase tariffs on Canadian oil and gas beyond the initial 10% in April 2025. Canadian Natural Resources’ share price has surged 104% since April 2025.

At the heart of CNQ’s capital appreciation is a changing energy supply chain environment amidst geopolitical tensions. While natural gas prices surged, CNQ addressed growing demand by acquiring more oil sands reserves. It has been quick to reduce its acquisition debt from the output generated by higher production and inflated oil and natural gas prices.

The company is set to release its third-quarter earnings on November 5, and market sentiment suggests another better-than-expected earnings report. Hopefully, it might achieve its $13 billion net debt target by the end of 2026, which could give the company flexibility to accelerate dividend growth to double digits in 2027 from 6.4% in 2026.

How to invest in the two stocks

Magna stock might continue to fall till January 2027 before it recovers, as the tariff impact becomes known. You could consider buying the stock then. As for Canadian Natural Resources, it is already trading near its all-time high and has the potential to grow further. If you own the stock, keep holding it or consider buying it now instead of waiting for another dip.