How To Invest In An “Elbows Up” Economy

Options and opportunities in today's tariff and trade war environment

Tariffs are on — then they’re off. Then they’re back on. The whole thing has investors tied in knots, wondering what to do next. Many are simply sitting on their hands, waiting for some sort of clarity but here are some ideas you can review to keep on track with your goals.

The recent developments in Canada-US trade relations have sparked confusion and volatility, but it’s also a moment for many Canadians to reflect on. While many of us are changing our buying habits and travel plans, it’s also a time to think about financial and investment plans.

Times like this is where a financial plan, built with the help of an advisor, really proves its worth. If your plan meets your needs and risk tolerance, then calmly moving ahead based on that plan is your best option. But if you have any uncertainty, now is a good time to speak to a financial or investment advisor.

That said, let’s get an update on the Canada-US economic situation and look at some strategies that are proven to work in unsettled times like these.

More tough trade talks, and wild markets, are likely

At this point, it’s safe to say that, at least for the next few years, US tariffs will be higher than they have been in decades — potentially much higher.

That will make negotiations between the US and other countries tough. After all, if a country’s products are going to be tariffed no matter what, they won’t want to give up much in trade talks.

What’s more, the US Court of International Trade recently struck down many of Trump’s tariffs, even though they remain in effect pending an appeal. That further weakens Trump’s bargaining position.

Remember, too, that Trump’s “reciprocal” tariffs are still in play, as he’s delayed them until July 8 (though Treasury Secretary Scott Bessent has said they could be pushed back again).

All of this reinforces the importance of two things:

1. Building an emergency fund, to ensure you can deal with a sudden setback (like a job loss) or a prolonged market selloff.
    
2. Avoiding emotion-based selling. The selloff after the “Liberation Day” tariffs announced on April 2 shows how giving in to fear can hurt returns. If, for example, an investor held the average S&P 500 stock and sold at the trough of the selloff on April 8, they would have locked in a 15% loss from the start of the year and missed the entire rebound since (not to mention dividends).

Selling your US stocks? Don’t forget these trade-offs

Many Canadian investors are selling their US stocks in response to Trump’s tariffs and other threats.

It’s understandable, and if you feel like doing so, it could be the right move for you. But it’s unlikely to send a message to US firms, as a few (or even many) Canadians selling shares won’t likely move the needle on their prices. “Selling America” also means losing access to companies with few, if any, global equivalents, such as the US tech giants.

Nonetheless, if you still feel that selling US stocks is right for you, there’s no reason not to proceed. And there is a silver lining here: The “sell America” trade has prompted more people to think about diversifying. That’s a good thing, as Canadians tend to put a lot of weight on their home country and the US. 

Do this to make your global buys tax-efficient

If you are rethinking your portfolio mix, it’s also worth reviewing where your investments are held from a tax perspective.

No need to get into too much detail here. Suffice it to say that it could be prudent to hold Canadian dividend-paying stocks in a taxable account — or outside of a TFSA or RRSP. That’s because eligible Canadian stocks qualify for a dividend tax credit. As a result, they’re generally more tax-efficient than regular income.

Meantime, you could hold your foreign stocks and funds inside your RRSP, since global stocks don’t get the dividend tax credit. Inside your RRSP, dividends and gains accrue tax-free until you withdraw them, when they’re taxed as regular income (ideally when you’re retired and in a lower tax bracket).

The best move is to speak with an advisor, who can help ensure your portfolio is optimized to keep taxes as low as possible. So don’t let this issue cause you to miss out on opportunities — at home or abroad.

Put this US legislation on your radar

If you’ve been following the business press, you may know that the US Congress is focused on the “One Big Beautiful Bill,” which contains many of the Trump administration’s tax and spending moves. The bill contains Section 899, a tax on certain income, such as dividends from US stocks paid to foreign investors.

It’s early to go into the full ramifications, as the legislation hasn’t passed, and this section could change. But as it stands, it would raise withholding taxes (or the amount US firms hold back and send to the IRS) on investors from countries the US feels have “unfair” taxes on American firms. Canada’s digital services tax could put it on this list.

For now, it’s worth keeping an eye on this, but not making any snap moves until the situation becomes clearer. One thing to note: If this section does go into effect as written, it wouldn’t apply to capital gains, so one response could be to shift toward US stocks paying little or no dividends. But even that would be premature now.

If you have questions about this matter and how it may affect you, it’s best to set up a discussion with an experienced advisor.

Term-deposit “laddering” has extra appeal now

For those looking for income and a guaranteed principal, term deposits, or guaranteed investment certificates (GICs), could be a good option. Do note that rates have fallen in recent years to around 3% or 3.5%. Higher rates are available to those who lock in their money for longer.

With that in mind, it could make sense to “ladder” by putting some money into a longer-term deposit and sprinkle some across shorter terms to keep it accessible (and allow for the opportunity to reinvest at higher rates if they come available). It’s a low-risk way to stay flexible and give yourself added peace of mind.

From global investing to taxes: Professional advice is vital now

At times like these, keeping the headlines in perspective, and avoiding knee-jerk reactions, is much easier said than done. That’s why it’s critical to have a professional advisor take a calm, outside look at your finances. Our advisors give you just that, plus all the up-to-date information you need to make your best financial decisions.

No matter what comes next, we’re here for you. Make an appointment today.