\n(frequency of EPU indicators)<\/p>\n
![\"Tariff](\"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-content\/uploads\/2025\/02\/viewpoint-tariffs-2025-chart1.png\")
<\/p>\n
Shaded regions represent periods of US recession; source: Guardian Capital using data from PolicyUncertainy.com to December 2024<\/em><\/p>\n The potential introduction of new tariffs by the US \u2014 whether they are sweeping levies on all goods imported into the US, more targeted taxes on goods produced in those countries viewed by the incoming President as the \u201cgreatest offenders\u201d, which include Canada and Mexico (the co-signatories of the US-Mexico-Canada Agreement (USMCA) that was negotiated during Trump\u2019s first term) and China, or a bit of both \u2014 and the prospect of retaliation would have a significant impact on global growth given that the export of goods and services across borders accounts for roughly one-third of global output as per data from the World Bank<\/a>1<\/sup>.<\/p>\n Of course, added two-way barriers that reduce the volume of trade would carry far less sting for the US from a production standpoint than it would for its counterparts, given that the American economy is far less dependent on exports than others. In fact, of the world\u2019s top 40 economies, exports accounted for the lowest share of gross domestic product (GDP) in 2023 in the US (11%), while countries in Europe and Southeast Asia find themselves at the other end of the spectrum and Canada (33%) and Mexico (36%) are somewhere in the middle \u2014 for its part, China (20%) is on the lower side. Even with respect to imports, the US economy (14% of GDP) is at the bottom of the list in terms of general exposure.<\/p>\n Imports & exports of goods & services as a share of gross domestic product<\/strong> Source: Guardian Capital using data from the World Bank for 2023<\/em><\/p>\n While a large and effectively closed economy like the US may not be overly reliant on trade as a driver of growth, it is still very much exposed to the global supply chain. Inputs to production of goods can be imported from one country and the resulting finished product then shipped abroad. A country\u2019s domestically-produced goods can also be exported and serve as an input to production for a foreign-produced finished goods. Economies are intertwined and any disruptions in trade flows or increase in costs will reverberate and compound throughout the supply chain and be felt throughout the world \u2014 including the US.<\/p>\n So not only would Americans face higher costs on imported finished goods \u2014 of which pharmaceuticals, motor vehicles & parts, crude oil, computers and other electronics top the list<\/a>2<\/sup> \u2014 they would also feel the impact of tariffs on an array of goods that carry the \u201cMade in America\u201d label.<\/p>\n Moreover, while the goal of tariffs may be to punish exporters and support US production, there currently are not readily-available domestically-produced substitutes for many foreign goods. Creating capacity takes time and likely will require shifting capital and labour from areas where the American economy has a competitive-advantage (making computer software, for example) to one where it is comparatively weaker versus other countries (making computer hardware). The ultimate result is that American businesses and end consumers are going to face higher costs for goods whether they are produced within the US borders or not \u2014 and it is worth highlighting that despite what may regularly be stated, it is the ones doing the importing, not the exporters, that pay the tariffs on goods shipped stateside.<\/p>\n Flexible exchange rates do offer a mechanism to blunt the impact of tariffs on trade, as currency depreciation will partially offset the cost hit of the tariff, but that has negative spillover effects as it makes the costs of goods & services (think tourism) imported from the US more expensive in local terms, which, in turn, reduces their demand at the expense of the American economy. A divergence of monetary and fiscal policies, where exporting countries adopt more contractionary stances in an effort to replace US demand with domestic demand, would further weigh on foreign exchange rates.<\/p>\n The bottom line is that if the US follows through with aggressively taxing imports, there will be material implications for not just the exporting nations, but the American economy as well, and the bigger and broader the policy, the more significant the impact \u2014 not just the immediate weaker demand and higher costs associated with the tariffs, but policy uncertainty is also likely to weigh on investment and consumption decisions as well; at the detriment to growth.<\/p>\n American import tariffs would have an outsized impact on Canada and Mexico given their dependence on the US \u2014 Canada and Mexico send more than 70% and 80% of their exports stateside, respectively.<\/p>\n Exports of goods to the US<\/strong><\/p>\n Source: Guardian Capital using data from the US Census Bureau and International Monetary Fund for 2023<\/em><\/p>\n Within the Canadian economy, there are clear areas that are more exposed to the potential impact of lost demand from American consumers and businesses \u2014 while the likelihood of further downward pressure on the Canadian dollar that would come from the imposition of tariffs would be felt broadly.<\/p>\n Most notably, Canada exported roughly C$150 billion worth of oil & gas to the US in 2023 and another C$80 billion in motor vehicles & parts \u2014 these tallies represented a significant share of the overall production in these industries, as an example to really emphasize the dependence on Americans, while the new pipeline expansion gives Canadian energy producers access to more international markets, it remains the case that the vast majority<\/a>3<\/sup> goes across our southern border and almost all of motor vehicle exports go to the US.<\/p>\n Canadian merchandise exports to US<\/strong> Source: Guardian Capital using data from Statistics Canada for 2023<\/em><\/p>\n The prospect of tariffs on the auto industry look to be particularly challenging. The integration of production processes across North America, thanks to the USMCA and North American Free Trade Agreement (NAFTA) before that, means that motor vehicle parts cross borders multiple times (estimated to be as many as 8 times<\/a>4<\/sup>!) before the finished product finally ships \u2014 that means there is the potential for multiple layers of tariffs applied during the production process at a growing cost to consumers.<\/p>\n US new passenger vehicle imports by country<\/strong> Source: Guardian Capital using data from the US Trade Information Administration for the year-to-September 2024*<\/em><\/p>\n Unsurprisingly, the parts of Canada most exposed to these key sectors are likely to feel the biggest negative impact from tariffs, and that is especially the case for the more commodity-oriented provinces such as Alberta and Saskatchewan, while the more diversified economies are comparatively insulated.<\/p>\n Canadian merchandise exports to US as a share of provincial gross domestic product*<\/strong> <\/p>\n *average from 2020 to 2023; source: Guardian Capital using data from Statistics Canada<\/em><\/p>\n _____________ <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n 1<\/sup> World Bank Group, Exports of goods and services (% of GDP), 2023. https:\/\/data.worldbank.org\/indicator\/NE.EXP.GNFS.ZS?end=2023&start=2023&view=map<\/a> This commentary is for general informational purposes only and does not constitute investment, financial, legal, accounting, tax advice or a recommendation to buy, sell or hold a security. It shall under no circumstances be considered an offer or solicitation to deal in any product or security mentioned herein. It is only intended for the audience to whom it has been distributed and may not be reproduced or redistributed without the consent of Guardian Capital LP. This information is not intended for distribution into any jurisdiction where such distribution is restricted by law or regulation.<\/strong><\/p>\n The opinions expressed are as of the date of publication and are subject to change without notice. Assumptions, opinions and estimates are provided for illustrative purposes only and are subject to significant limitations. Reliance upon this information is at the sole discretion of the reader. This document includes information concerning financial markets that was developed at a particular point in time. This information is subject to change at any time, without notice, and without update. This commentary may also include forward-looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. Investing involves risk. Equity markets are volatile and will increase and decrease in response to economic, political, regulatory and other developments. Investments in foreign securities involve certain risks that differ from the risks of investing in domestic securities. Adverse political, economic, social or other conditions in a foreign country may make the stocks of that country difficult or impossible to sell. It is more difficult to obtain reliable information about some foreign securities. The costs of investing in some foreign markets may be higher than investing in domestic markets. Investments in foreign securities also are subject to currency fluctuations. The risks and potential rewards are usually greater for small companies and companies located in emerging markets. Bond markets and fixed-income securities are sensitive to interest rate movements. Inflation, credit and default risks are all associated with fixed-income securities. Diversification may not protect against market risk and loss of principal may result. Index returns are for information purposes only and do not represent actual strategy or fund performance. Index performance returns do not reflect the impact of management fees, transaction costs or expenses. Certain information contained in this document has been obtained from external parties, which we believe to be reliable, however, we cannot guarantee its accuracy.<\/p>\n Guardian Capital LP manages portfolios for defined benefit and defined contribution pension plans, insurance companies, foundations, endowments and investment funds. Guardian Capital LP is a wholly owned subsidiary of Guardian Capital Group Limited, a publicly traded firm listed on the Toronto Stock Exchange. For further information on Guardian Capital LP, please visit www.guardiancapital.com<\/a>. All trademarks, registered and unregistered, are owned by Guardian Capital Group Limited and are used under license<\/p>\n Published: January 2025<\/p>\n","protected":false},"excerpt":{"rendered":" The looming regime change in the US and the accompanying uncertainty about the returning Administration\u2019s approach to economic policy, especially with respect to international relations and trade, has cast a significant pall over the outlook for not just the US but the entire world.<\/p>\n","protected":false},"comment_status":"closed","ping_status":"closed","template":"","insight_tags":[155],"class_list":["post-9089","insight","type-insight","status-publish","hentry","insight_category-insights","insight_tags-market-insights"],"acf":[],"lang":"en","translations":{"en":9089},"pll_sync_post":[],"_links":{"self":[{"href":"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-json\/wp\/v2\/insight\/9089","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-json\/wp\/v2\/insight"}],"about":[{"href":"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-json\/wp\/v2\/types\/insight"}],"replies":[{"embeddable":true,"href":"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-json\/wp\/v2\/comments?post=9089"}],"wp:attachment":[{"href":"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-json\/wp\/v2\/media?parent=9089"}],"wp:term":[{"taxonomy":"insight_tags","embeddable":true,"href":"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-json\/wp\/v2\/insight_tags?post=9089"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n(percent)<\/p>\n![\"Tariff](\"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-content\/uploads\/2025\/02\/viewpoint-tariffs-2025-chart2.png\")
<\/p>\n
\nOne of the major byproducts of the movement toward global free trade over the last three decades is that production processes have become increasingly integrated. All of the value-added to the goods & services produced within a given economy does not necessarily originate from that country.<\/p>\nA Canadian perspective<\/h3>\n
![\"Tariff](\"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-content\/uploads\/2025\/02\/viewpoint-tariffs-2025-chart3.png\")
<\/p>\n
\n(billions of Canadian dollars)<\/p>\n![\"Tariff](\"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-content\/uploads\/2025\/02\/viewpoint-tariffs-2025-chart4.png\")
<\/p>\n
\n(billions of US dollars)<\/p>\n![\"Tariff](\"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-content\/uploads\/2025\/02\/viewpoint-tariffs-2025-chart5.png\")
<\/p>\n
\n(percent)<\/p>\n![\"Tariff](\"https:\/\/www.guardiancapital.com/investmentsolutions\/wp-content\/uploads\/2025\/02\/viewpoint-tariffs-2025-chart6.png\")
<\/p>\n
\nDavid Onyett-Jeffries<\/strong>
\nDavid Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP) and provides macro-economic guidance to GCLP and its affiliates\u2014Alta Capital Management LLC and GuardCap Asset Management Limited.<\/p>\n
\n2<\/sup> U.S. Census Bureau, U.S. International Trade in Goods and Services (FT900), November 2024, Release Number: CB 25-05, BEA 25-01, published Jan 7, 2025. https:\/\/www.census.gov\/foreign-trade\/Press-Release\/current_press_release\/ft900.pdf<\/a>
\n3<\/sup> Canada Energy Regulator, Market Snapshot: Almost all Canadian crude oil exports went to the United States in 2023, Market Snapshots, Release date: 2024-08-21. https:\/\/www.cer-rec.gc.ca\/en\/data-analysis\/energy-markets\/market-snapshots\/2024\/market-snapshot-almost-all-canadian-crude-oil-exports-went-to-the-united-states-in-2023.html<\/a>
\n4<\/sup> Canadian Vehicle Manufacturers’ Association, Canada\u2019s Auto Industry: Driving jobs, investment, and innovation, Industry, Important Facts. https:\/\/www.cvma.ca\/industry\/facts\/<\/a><\/p>\n