Special Report

Tariff Turmoil:
Investment Insights

February 2025

Key Takeaway

  • Diversifying investments globally across various geographies, industries, and asset classes is crucial in the current environment.

For many investors, the memory is still fresh. It was a crisp November evening in 2016 when Donald Trump’s surprise victory sent shockwaves through global markets, triggering an immediate sell-off. Yet, within minutes, the mood had completely shifted. Over the ensuing four years, the Dow Jones saw its most robust performance under any Republican President since Calvin Coolidge during the roaring 1920s.

This anecdote isn’t meant to predict the outcome of Trump’s potential second term. Rather, it underscores a key lesson in market behavior: knee-jerk reactions fade, while enduring macro trends shape longer-term outcomes. This wisdom is particularly relevant amid today’s tariff tumult.

Amid all the uncertainty, what should investors focus on? 

Below, we list our key insights:

  • Dubbed by The Wall Street Journal as the “dumbest trade war in history,” the current tariff skirmishes defy traditional economic logic. While Trump has wielded tariffs effectively as negotiation tools, targeting close allies and scrapping agreements like the USMCA (which he himself negotiated) appears contradictory.
  • Nevertheless, portfolio managers are not paid to opine on what policymakers ought to do (those discussions are reserved for dinners with the in-laws). Rather, we are paid to anticipate probable risks, prepare for opportunities and, importantly, not lose our proverbial heads when everyone else has lost theirs.
  • With facts on the ground changing quickly, it is difficult to predict exactly how this episode will evolve for Canada. However, the foundation of the North American supply chain ecosystem has been badly shaken. This is undoubtedly bad news for all parties involved. However, for Canadian investors, there is a silver lining: this wake-up call will catalyze much-needed reforms, including reducing intra-provincial trade barriers (by some estimates, equivalent to a 21% tariff), diversifying exports, and potentially even lowering taxes.
  • Will tariffs, if enacted, work this time? Likely not. Tariffs didn’t deliver in Trump’s first term—they didn’t reduce America’s trade deficit, restore its competitiveness, or weaken China’s role in global supply chains. A second round is unlikely to fare better. In general, tariffs raise input costs and strengthen the dollar, which makes it harder for US businesses to export.
  • Tariffs are also blunt instruments. Economic policies never work in linear fashion. Unintended consequences are the rule rather than the exception. Who pays the tariffs and where they will add to inflation is the focus of today’s conversation. But consider broader second-order effects: the more the US isolates itself with protectionist policies, the more other countries will strengthen ties with each other.
  • The world outside of America is a far different place than it was in 2018, when Trump started his trade wars. Back then, most countries were caught off guard. Since then, many have taken strategic steps to build resilience. Some of this includes controls on critical exports. Some of it includes building alternative trade pathways that bypass the US. But much of the increased resilience is due to other nations doubling down on their own domestic capacities (what we call the “Protectionist’s Paradox”). Expect this trend to accelerate, which means more fiscal stimulus, increased support for local companies, and a strengthened focus on expanding industrial capacity. These are supportive trends for many global investment classes.
  • Looking ahead, deeper integration among countries beyond America is inevitable. Alternative trading systems and partnerships aimed at minimizing dependence on the US have already been established, fostering the emergence and acceleration of new leadership in investment. Currently, many of these regions offer assets with subdued expectations, appealing valuations, and supportive stimulative policies—a promising foundation for robust investment returns.

Investment Implications

At a time when nearly every newsfeed is narrowly focused on policy coming from 1600 Pennsylvania Avenue, investors are well-served to take a step back. Keeping up with the headlines and whether the American president gets up on the right side of the bed is futile.

A better approach is to recognize that a number of scenarios—both positive and negative—could unfold. In times like these, leaning on global diversification is more important than ever: across geographies, sectors and asset classes. 

That means diversifying both within and outside America. Within America, we are invested in banks and mid-cap companies—areas of the market that have de-regulating tailwinds. Outside America, where valuations are compelling, we are focused on sectors like industrials and materials and countries like Japan that are well-positioned to weather trade wars. 

Now is the time to be building resilience into portfolios. Forstrong’s globally-diversified strategies are designed to adapt to new realities, with the goal of safeguarding against significant losses and securing the best possible financial futures for our clients.

Portrait of David Kletz, VP & Portfolio Manager of Forstrong Global.

Tyler Mordy 

Chief Executive Officer & Chief Investment Officer

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